SlideShare une entreprise Scribd logo
1  sur  8
Télécharger pour lire hors ligne
www.SimpleP3M.co.uk
How to simply estimate
the costs of poor project
delivery
By
Adrian Shaw (P3M Consultant)
Introduction
If your organisation is not good at delivering projects on-time, within
budget and to quality expectations, it is well worth doing something to
count the costs as the results can be surprisingly high.
If you are not yet reliably delivering projects then it is very likely that you
do not have a fit-for-purpose standard corporate project management
framework in place, in which case you are probably not measuring
project performance.
This means you will not have data to refer to; nevertheless it is still
worth (gu)estimating some high level figures that will serve to give you
valuable indicative ballpark information.
www.SimpleP3M.co.uk
Business Case
The cost of poor project delivery can then provide the basis of
a Business Case for implementing a framework that will
greatly improve project delivery performance.
Such a Business Case should include estimates for reduced
project costs, project delivery efficiency improvements and
any operational benefits (or start of production benefits) that
would result from timely project completions.
www.SimpleP3M.co.uk
Source data
To simply (gu)estimate the costs of projects going over-budget
and over-running the following small amount of data is
required:
Total number of projects in flight during the financial year, TNP
Average project budget within the financial year (£), APB
Average project duration over-run (weeks), APDO
Average project cost over-budget (%), APCO
Example:
TNP = 100
APB = £10,000
APDO = 8 weeks
APCO = 15%
www.SimpleP3M.co.uk
Calculations
The total annual project budget is easily calculated as:
TPB = TNP x APB (£)
The total cost of projects over-running is therefore:
TPDO = (APDO / 52) x TPB (£), and
The total cost of projects going over-budget is therefore:
TPCO = (APCO / 100) x TPB (£)
Example:
TPB = 100 x £10,000 = £1,000,000
TPDO = (8/52) x £1,000,000 = £153,846
TPCO = (15/100) x £1,000,000 = £150,000
www.SimpleP3M.co.uk
Important Point!
The total cost of projects over-running (TPDO) should result in a deficit
compared with the corresponding financial year budget. However, this is
masked by the total cost of projects going over-budget (TPCO) within the
financial year, often resulting in something close to budget being spent!
So, an organisation can be fooled into thinking that it has got good
control of its projects and their costs when, in reality, the project over-
run costs (TPDO) must now be budgeted within the following financial
year, which would have been unnecessary if the projects had been
delivered on time.
The organisation has, in fact, not achieved the expected value of its
projects within the financial year and the masking effect is hiding a
double whammy!
www.SimpleP3M.co.uk
Illustration of TPCO and TPDO masking
www.SimpleP3M.co.uk
Conclusion
The total project lost value TPLV = TPDO + TPCO, whereas the
variance against total project budget is TPBV = TPDO – TPCO.
Example:
TPLV = £153,846 + £150,000 = £303,846
TPBV = £153,846 - £150,000 = £3,846
Do you recognise this effect within your organisation? (Some businesses
rush around towards the end of the financial year trying to spend the
budget surplus caused by a positive variance TPBV!). If so, do you agree
that this is a terrible waste of money? Are you surprised how big the
numbers are? I would be interested to hear of your findings and
thoughts at Adrian@SimpleP3M.co.uk.
www.SimpleP3M.co.uk

Contenu connexe

Similaire à SimpleP3M cost calculator

L06 cost management
L06 cost managementL06 cost management
L06 cost managementAsa Chan
 
The Mahindra Shaan: Gambling on a Radical Innovation
The Mahindra Shaan: Gambling  on a Radical InnovationThe Mahindra Shaan: Gambling  on a Radical Innovation
The Mahindra Shaan: Gambling on a Radical Innovationindiechanel
 
Analyzing Project Cash Flows12.1 Identifying Incremental C.docx
Analyzing Project Cash Flows12.1 Identifying Incremental C.docxAnalyzing Project Cash Flows12.1 Identifying Incremental C.docx
Analyzing Project Cash Flows12.1 Identifying Incremental C.docxrossskuddershamus
 
Making the business case for your intranet
Making the business case for your intranetMaking the business case for your intranet
Making the business case for your intranetSam Marshall
 
D08 Quantify Project Value
D08 Quantify Project ValueD08 Quantify Project Value
D08 Quantify Project ValueLeanleaders.org
 
D08 Quantify Project Value
D08 Quantify Project ValueD08 Quantify Project Value
D08 Quantify Project ValueLeanleaders.org
 
Lecture cash flow evaluation new
Lecture cash flow evaluation newLecture cash flow evaluation new
Lecture cash flow evaluation newBsgr Planmin
 
Lecture cash flow evaluation new
Lecture cash flow evaluation newLecture cash flow evaluation new
Lecture cash flow evaluation newBsgr Planmin
 
PM Session 7
PM Session 7PM Session 7
PM Session 7dmdk12
 
Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...
Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...
Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...Ricardo Viana Vargas
 
Capital budgeting methods lecture notes
Capital budgeting methods lecture notesCapital budgeting methods lecture notes
Capital budgeting methods lecture notesWarui Maina
 
EM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docx
EM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docxEM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docx
EM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docxjack60216
 
Chapter 09 Capital Budgeting
Chapter 09 Capital BudgetingChapter 09 Capital Budgeting
Chapter 09 Capital BudgetingAlamgir Alwani
 
PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016
PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016
PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016Association for Project Management
 
Three little letters that can save any sized company from a rut kpi
Three little letters that can save any sized company from a rut kpi Three little letters that can save any sized company from a rut kpi
Three little letters that can save any sized company from a rut kpi williamsjohnseoexperts
 
Making Investment Decisions (introduction)
Making Investment Decisions (introduction)Making Investment Decisions (introduction)
Making Investment Decisions (introduction)tutor2u
 
Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...
Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...
Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...SlideTeam
 

Similaire à SimpleP3M cost calculator (20)

L06 cost management
L06 cost managementL06 cost management
L06 cost management
 
The Mahindra Shaan: Gambling on a Radical Innovation
The Mahindra Shaan: Gambling  on a Radical InnovationThe Mahindra Shaan: Gambling  on a Radical Innovation
The Mahindra Shaan: Gambling on a Radical Innovation
 
Analyzing Project Cash Flows12.1 Identifying Incremental C.docx
Analyzing Project Cash Flows12.1 Identifying Incremental C.docxAnalyzing Project Cash Flows12.1 Identifying Incremental C.docx
Analyzing Project Cash Flows12.1 Identifying Incremental C.docx
 
Making the business case for your intranet
Making the business case for your intranetMaking the business case for your intranet
Making the business case for your intranet
 
Earned value
Earned valueEarned value
Earned value
 
Priyankabba
PriyankabbaPriyankabba
Priyankabba
 
D08 Quantify Project Value
D08 Quantify Project ValueD08 Quantify Project Value
D08 Quantify Project Value
 
D08 Quantify Project Value
D08 Quantify Project ValueD08 Quantify Project Value
D08 Quantify Project Value
 
Bus 630 preview full class
Bus 630 preview full classBus 630 preview full class
Bus 630 preview full class
 
Lecture cash flow evaluation new
Lecture cash flow evaluation newLecture cash flow evaluation new
Lecture cash flow evaluation new
 
Lecture cash flow evaluation new
Lecture cash flow evaluation newLecture cash flow evaluation new
Lecture cash flow evaluation new
 
PM Session 7
PM Session 7PM Session 7
PM Session 7
 
Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...
Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...
Determining the Mathematical ROI of a Project Management Office (PMO) Impleme...
 
Capital budgeting methods lecture notes
Capital budgeting methods lecture notesCapital budgeting methods lecture notes
Capital budgeting methods lecture notes
 
EM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docx
EM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docxEM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docx
EM660 PROJECT MANAGEMENTClass 6Class 6 Agenda Fi.docx
 
Chapter 09 Capital Budgeting
Chapter 09 Capital BudgetingChapter 09 Capital Budgeting
Chapter 09 Capital Budgeting
 
PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016
PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016
PMO and Value Conference - Article - Ricardo Vargas, London, 25 October 2016
 
Three little letters that can save any sized company from a rut kpi
Three little letters that can save any sized company from a rut kpi Three little letters that can save any sized company from a rut kpi
Three little letters that can save any sized company from a rut kpi
 
Making Investment Decisions (introduction)
Making Investment Decisions (introduction)Making Investment Decisions (introduction)
Making Investment Decisions (introduction)
 
Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...
Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...
Fixed Capital Evaluation To Improve Business Growth Powerpoint Presentation S...
 

SimpleP3M cost calculator

  • 1. www.SimpleP3M.co.uk How to simply estimate the costs of poor project delivery By Adrian Shaw (P3M Consultant)
  • 2. Introduction If your organisation is not good at delivering projects on-time, within budget and to quality expectations, it is well worth doing something to count the costs as the results can be surprisingly high. If you are not yet reliably delivering projects then it is very likely that you do not have a fit-for-purpose standard corporate project management framework in place, in which case you are probably not measuring project performance. This means you will not have data to refer to; nevertheless it is still worth (gu)estimating some high level figures that will serve to give you valuable indicative ballpark information. www.SimpleP3M.co.uk
  • 3. Business Case The cost of poor project delivery can then provide the basis of a Business Case for implementing a framework that will greatly improve project delivery performance. Such a Business Case should include estimates for reduced project costs, project delivery efficiency improvements and any operational benefits (or start of production benefits) that would result from timely project completions. www.SimpleP3M.co.uk
  • 4. Source data To simply (gu)estimate the costs of projects going over-budget and over-running the following small amount of data is required: Total number of projects in flight during the financial year, TNP Average project budget within the financial year (£), APB Average project duration over-run (weeks), APDO Average project cost over-budget (%), APCO Example: TNP = 100 APB = £10,000 APDO = 8 weeks APCO = 15% www.SimpleP3M.co.uk
  • 5. Calculations The total annual project budget is easily calculated as: TPB = TNP x APB (£) The total cost of projects over-running is therefore: TPDO = (APDO / 52) x TPB (£), and The total cost of projects going over-budget is therefore: TPCO = (APCO / 100) x TPB (£) Example: TPB = 100 x £10,000 = £1,000,000 TPDO = (8/52) x £1,000,000 = £153,846 TPCO = (15/100) x £1,000,000 = £150,000 www.SimpleP3M.co.uk
  • 6. Important Point! The total cost of projects over-running (TPDO) should result in a deficit compared with the corresponding financial year budget. However, this is masked by the total cost of projects going over-budget (TPCO) within the financial year, often resulting in something close to budget being spent! So, an organisation can be fooled into thinking that it has got good control of its projects and their costs when, in reality, the project over- run costs (TPDO) must now be budgeted within the following financial year, which would have been unnecessary if the projects had been delivered on time. The organisation has, in fact, not achieved the expected value of its projects within the financial year and the masking effect is hiding a double whammy! www.SimpleP3M.co.uk
  • 7. Illustration of TPCO and TPDO masking www.SimpleP3M.co.uk
  • 8. Conclusion The total project lost value TPLV = TPDO + TPCO, whereas the variance against total project budget is TPBV = TPDO – TPCO. Example: TPLV = £153,846 + £150,000 = £303,846 TPBV = £153,846 - £150,000 = £3,846 Do you recognise this effect within your organisation? (Some businesses rush around towards the end of the financial year trying to spend the budget surplus caused by a positive variance TPBV!). If so, do you agree that this is a terrible waste of money? Are you surprised how big the numbers are? I would be interested to hear of your findings and thoughts at Adrian@SimpleP3M.co.uk. www.SimpleP3M.co.uk