Thursday, September 15, 2005

The Impact of Initiation and Planning on the Project Budget

For those familiar with Earned Value, we know that the calculations require a baseline (which get created at the end of the planning phase), as well as actual costs.

But what about all that time spent during the all-important initiation phase (which should include some sort of conceptual planning and alternatives analysis) and the planning phase (which includes WBS and schedule development)? These happen prior to Earned Value tracking.

Typically, there will be quite a bit of time spent in these phases, and by the time the baseline is approved at the end of these phases, a big chunk of the budget has already been spent. Since we can't use Earned Value during those phases (no baseline exists yet), how can we avoid blowing our budget too early?

I've seen several approaches to this:

1) One approach is to create the initiate phase in the project schedule immediately upon starting a project. Begin tracking time immediately. Consider starting with a baseline (i.e. budget) for that phase, and tracking against "budget" just like you would the rest of the project. The problem is that it's hard to budget for this type of activity.

2) Another approach is to do the initiation work (conceptual planning, initial requirements gathering, preliminary scope and business case development, etc.) outside of the project, and begin the project with the charter resulting from that "early initiation" activity (typically just after project approval). As Max Wideman said on his site, there's not really consensus in the industry if these "front-loading" activities should be part of the project or not. Still, you'd need track the WBS and schedule development, but at least those activities are easier to get a handle on.

3) I've even seen companies not bother tracking time until the schedule has been created and baselined. All initiation and planning phases are outside of the project. Sometimes they don't even submit their project for acceptance until after the WBS and schedule have been created. Most companies want the first approval earlier, though, based on an order-of-magnitude estimate.

I'd be curious to see what other approaches may exist for controlling (or not) the time spent on the initiation and planning phases.

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posted by Jerry Manas @ 9:05 PM, Read More...  
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3 Comments:

At 9:38 AM, Anonymous Garry L. Booker said...

Jerry,

If Earned Value Management is implemented at the project level, this question will come up again and again, with potentially inconsistent answers. So here's a "thought leadership" answer for your consideration: Implement EVM at the enterprise level. That is, track every element of work in the organization with a comprehensive EVM system.

You have identified an interesting challenge because many times planning for a project occurs in an indirect account (i.e. a G&A account) yet the execution phase is a direct account (e.g a revenue-producing project). Thus, budgeting and accounting for the two parts are entirely separate; their budgets can NOT be combined. However, if an Enterprise EVM system has a way of linking related elements of work (e.g. finish-to-start relationship from G&A-funded planning to client-funded execution) then it is a trivial matter to combine the two parts into a unified whole, despite their accounting differences. This is as it should be, because planning and execution should never be like two silos.

Enterprise EVM enables Systems Thinking (ala Peter Senge) which is the antidote to Silo Thinking.

Does an enterprise-level EVM system sound too radical for most organizations?

/Garry

 
At 10:29 PM, Blogger Jerry Manas said...

Garry, once again, you raise an intriguing idea. Funny you mention Peter Senge. I'm a big fan of the Fifth Discipline and its systems thinking and learning organization approaches.

I'd like to explore this enterprise EPM concept further, especially the idea of linking the planning and execution components of a project, and how it can make up for the difference in the way these two phases are typically tracked.

I think you may be on to something. At any rate, it seems this is a topic worth addressing for the industry, as I've been asking around and it's a common problem.

 
At 10:38 PM, Blogger Jerry Manas said...

I posed the same issue (common practices in tracking time spent in the initiate and plan phases) to my friend, Tom Vanderheiden, Chairman of the Board of PMI's Aerospace and Defense SIG and consultant to the A&D industry (and my co-lead on PMI's Program and Portfolio Management Standard program).

Here's what Tom had to offer...


"Hi Jerry. This is a good topic and one that is not frequently appreciated. For many, the planning process is performed by salaried (Level of Effort) management people. Also, the products of the planning process group are frequently templates that don't require a major effort to develop. The hardest to perform deliverable is obviously developing the cost, schedule, and technical baseline and can be a substantial effort. As you stated, it is easy to lose focus during initiation and planning and can cause schedule delay problems. Usually the initiation and planning work is not considered part of the project and too little time and monies are budgeted for it.

The most logical and desired approach is to develop a plan to do planning as part of the project. It is critical for management and the client to understand and appreciate the importance of developing the Project Management Plan. If a "rolling wave" type of planning process is accepted, the first project phase activity should be development of the baseline for the Planning activities that includes definition of deliverables, definition of resource requirements, and development of a cost and schedule baseline for those planning activities. The planning processes should be considered as the first phase of the project that can be baselined and planned and monitored by use of an EVM process. Too frequently the management of buyer and seller expect the project be kicked off immediately on award of a contract. That is very dangerous and a high risk to successful project performance.

With this approach, which should become a standard for every relatively large company/project, eventually the executives of the buyer and seller will require an allowance for such effort. As many government contracting offices do not allow monies to be allocated to the planning/monitoring/controlling activities, often times large government programs are doomed before they start due to the lack of establishing a comprehensive PM Plan and definitively defining the stakeholder expectations and requirements before proceeding with the work. We need to facilitate changes to that attitude."

 

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