From the course: Project Management Simplified

Cost monitoring: The potential traps

From the course: Project Management Simplified

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Cost monitoring: The potential traps

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- I was talking to a guy whose job is to audit projects for the government. And we were talking about a large road that they're building near me, and I asked him how it was going, and he replied, "Well, it's going to cost 20 million pounds over five years, "and the first year is gone and we've spent four million, "so everything's fine." And I thought, "Really? "I'm not convinced about that." Can you see what the problem might be? In fact, two possible problems? The first thing I'm worrying about is progress. They're only monitoring the money, but what if we've only done 10% of the project and still spent four million? The whole thing's heading for 40 million eventually instead of 20. And the accountant has no idea of progress. Even if he or she went down to the construction site, how can he or she tell if they've done 10% or 20%? How can he tell if they're on plan or behind plan by looking at the work itself? He can't. But, of course, the Gantt chart shows it really clearly and easily. Let's say we only did half of what we should have done in year one, but we spent at double the planned rate to do it, so we spent four on the first half which should have only cost us two. In this case, we're both overspent and late, but the two problems cancel each other out and are invisible to the accountant. And lateness and overspending often go together. Any problem like having to do a task twice or having forgotten a task will cause you both lateness and overspending. But as soon as we look at the Gantt chart, we can see that we've only done half of what we should have done, so there must be a problem. It's really quick and easy, providing you have a Gantt chart, otherwise you just don't know what's happening. But what if they have done what they planned in year one, so they're on schedule, the Gantt chart is all nicely colored in up till the today line. Can you see what else I'm worrying about? And it's the spend profile. Maybe, instead of costing a steady four million a year, what if the first year was only meant to cost two million? They were just doing something cheap like digging some holes, and the major spend was going to come later in the project? But for some reason, the holes cost four million instead of two. Maybe the whole thing is now heading for 40 million in total. Or maybe it's not that bad, it's just a one-off over spend and we're heading for 22 million. But either way, the accountant has no idea that there's even a problem, because he or she didn't know how much the first year was meant to cost. So how can we know how much each year of our project is meant to cost? The only way is to use a Gantt chart, because this tells us what we're planning to do when. And if we know the cost of each task, or even better, we have the weekly costs written along the bars, we can add up and see the planned cost. Accountants often assume that projects will be linear, that we spend the same amount in each month or year, and I think this is because most processes are linear, and it's easy to forget that projects are different. Also, without getting into project planning, which is not really part of their job, accountants just don't have the information about non-linear spend rates. So the conclusion is that in order to make sense of the cost information, the correct and very important cost information, we must look at the colored in Gantt chart as well. The accountants only have half of the story and it's vital to talk to the project manager and then pair it up with the Gantt chart to find out how much we've done and what that should have cost. When you're looking at financial information, always check for progress and always keep an eye on non-linear spend.

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