The Summit - March 2023
The newsletter for PS Executives!
Staged Budget Control
I cannot stress enough the importance of Stage Budget Control (SBC) fore the successful delivery of projects within your portfolio. Yet, when we talk about it with companies there is still some reluctance from managers to make the effort to try and use it as a technique. While it can seem daunting to attempt to stop a project's momentum, in reality, SBC doesn't tend to be anywhere near as difficult as people might think. Here are some of the things that you can do to establish Stage Budget Control within your project portfolio and how you can deal with the real-world situations that will arise.
START WITH THE STATEMENT OF WORK
When customers read the word "the parties agree that that each stage of this project is not authorized to consume budget allocated to a future stage", they respond favorably. This is because it gives them comfort that the project's budget will not run away with itself. This is not exactly what the words are saying, but when they are read, this is the feeling they give. Even if the customer was spooked by your SOW wording the resultant conversation about this topic during the negotiating phase is a great one to have and can be used to separate you from your competitors.
"Yes, we adopt an approach that ensures that any stage that exceeds it allocated budget escalates to the project sponsors for immediate review. This is the level of care and attention we place on providing customers with successful project delivery." Having had this conversation many times with customers they are always delighted to be working with a firm that recognizes the danger in the journey that is about to undertaken. Remember however that we are not trying to scare the customer, but give them comfort. I find this a challenging concept sometimes if a customer is not exhibiting any fear. You don't want to unnecessarily start talking about fearful concepts such as failure and job risk, but yu can start asking about elements of the journey that you know to be challenging.
SET UP REPORTING BY STAGE
Does your PSA allow you to break the project into stages that can be budgeted separately. While some PSA's allow you to do this, they do not do it specifically for this purpose. However, if it can be done, do it so that you can get the reporting you need. Maybe you can set a trigger that notified you when a budget stage has been 75%, 90% or even completely consumed.
If your PSA can't do this then try tracking it separately by adding some custom fields that track the current stage and allocate the total budget that would be consumed at the end of that stage. For example, knowing that the Build stage only has $25k assigned to it and that the previous stages of Kickoff and Design had consumed $15k then you know that once the budget consumed reaches $40k that the Build stage has consumed all of its budget. This might take a little more management by the project managers but getting this information and knowing when to act on it is critical to determining which projects in your portfolio need your attention.
If you still can't get this reported then it is a simple statistic that you want shown at every sponsor review meeting. Regardless of how you get this information, the important outcome is that you are able to establish customer contact once the stage has consumed its budget and say "Let's discuss what happens next."
NEGOTIATING AN OUTCOME
As a part of my project management certification we are going to teach the very important concept of generating leverage through early action. Stage Budget Control was initially designed to do exactly that. As a project progresses the customer wants leadership. They give the service provider the proverbial rope to hang themselves with by sitting back and saying, "You lead". At the same time the customer has a tendency to disengage, or the at least, the customer's project sponsor gets distracted by other priorities. During that time the project does not progress as planned primarily because of a lack of quality information or engagement that was meant to be provided by the customer. If SBC helps you escalate consumption of the project's stage budget earlier, then it allows you to use the customer's failure to participate as one of your negotiating items. If you leave it until the next stages overconsumption then you leave yourself open to the argument of, "If this was so important, why didn't you escalate it then?"
While I believe you can negotiate positive outcomes even when we fail to escalate in a proactive way, it sure does impede your ability to achieve awesome outcomes. Hence, you must see it as a priority. Being able to say to the customer, "Your repeated misses have caused this stage to balloon beyond its original estimate" completely changes the stance with which the customer comes to the table. I've been through so many of these negotiations and they all follow the same sort of pattern.
Instant denial and an attempt to transfer the ownership of the situation back to the service provider. At this stage we clearly articulate that while we like for it to be that simple, we have clearly spent a good amount of time asking the customer's organization to participate in the project as required and we have been met with repeated misses and resistance to using our time to make effective progress." This usually brings about the retort, "That's because this is far more complicated and you have not done a good job of leading us to make decisions."
In some situations this may be true but usually it is as a result of the Business Transformation Paradox rather than the fault of the service provider. This paradox simply states that it is impossible for a customer to understand and make perfect decisions about a future solution that is being built in a product that it doesn't understand. Hence your negotiation must shift to the careful handling of this paradox. "We understand that you are finding it difficult to agree to specifications that you do not completely understand however projects continue to consume budgets for every minute that we work on them. The focus must be on getting on with the project and not delaying it unless you are prepared to pay for the time it will take to get a greater understanding of your design."
In reality we have found that this begins the process of the customer becoming more amenable to shared resolution. This is not when you should agree to it however. At this stage you are still pushing all out for the customer to fund all of the overage. It is only when you give up on that approach that you begin to look for the "shared" result. At this stage we have found that offering that the customer pay for the required overage and then should that overage be consumed that you will provide an additional overage at your expense is very successful. For example you could say, "We propose that you fund the remaining 100 hours of design work and should that work be completely consumed we will provide you with another 50 hours of free work as buffer." In most situations I'm prepared to go to 1:1 on my offer knowing that in most cases these hours do not get consumed. This is for two reasons. The first is that our team now has a much better understanding of what it is trying to achieve as "Done" for this stage. But more importantly the second reason is that the customer has now had to suffer a penalty for not engaging and is far more likely to engage correctly. This rapidly improves your teams effectiveness and the project has a much better chance of achieving its stage objectives.
In short, making the customer feel adequate consequences for the negative impact they have had on the project's stage helps set a much better level of engagement for the rest of the project.
Cyril Northcote Parkinson once wrote an essay that attempted to illustrate that work tends to take up the time that is allotted to it rather than the time required for it to be done. In chemistry this is known as Dalton's Law of Partial Pressures which states, "An ideal gas will expand in a container to fill up the space it is in and does not have any forces of attraction between the molecules." Parkinson's Law which was more anecdotal than scientific should then also note that just as "pressure" is the variable for gases, so to is "quality" the variable for how work might expand or contract to fill the time allotted.
This concept is relevant to PS Managers because it is the use of time that determines revenue. If Parkinson's law is true and work expands to fill the allotted time then there are times when we charge more for the work being done than necessary, but this is only true if quality is not affected. Likewise if the pressure of other projects or an accelerated deadline restricts the time available and the work effort then also decreases to fit the available time then we charged less revenue than we might have for the same work.
What does this mean? It means that revenue generation is partially subjective. A consultant who is required to write a report could do so in 5 hours and charge for them legitimately or the same report could be completed and charged as 4 hours. They may not be identical in quality, but if that quality is negligible then the only difference in is in how much we charged for it.
The determining factor for many of these outcomes within a portfolio is whether or not the consultant has other work to do. For example, if the consultant can write the report in 4 hours and do another hour of billable work elsewhere then utilization is maximized. If not then the opportunity to generate revenue is lost.
This expansion and contraction of work to fit the available time works seamlessly within most portfolios provided that the workload for each consultant is maintained at an optimal level. However, once the workload goes above that level we will see some unnatural things occur which risk both the revenue generating and margin capability of the resource (and hence the project as a whole). For every consultant there is a limit to the number of projects that can be assigned to that consultant before Parkinson's Law becomes unnaturally violated. The required effort to move the project forward exceeds the available time for work to be done. The work no longer expands pr contracts but is selectively forced into the time available. I say "selectively" because some of the work never progresses and gets pushed to a later time.
When this happens the downward spiral begins. Too little time to complete the activities assigned generates quality problems that create future rework while other work is postponed until tomorrow as well. Tomorrow now has more work assigned to it as a result of today's activities. This is a never ending cycle unless we find a time to clear tomorrow's calendar. This is the wisdom that every PS Manager must bring to their conversations with their consultants. Have they reached a point where Parkinson's Law is being unnaturally violated? Is the work not expanding and contracting as it should and has it started to be pushed into the future to create an ever-increasing backlog?
I've used Parkinson's Law a lot during the years. While scientists have explored it and have found it to be mostly true it does have its limits. Knowing how the law works and how you can use it to generate revenue but also to conserve the health and safety of your consultants is a critical skill that PS Managers must learn. Think about this as you have your 1:1's this week.
Have you ever had a difficult conversation?
Zbigniew Gradzki is a PSSC-3 graduate who has used the PS Principles to grow his career. Starting as a communications engineer he has continued to develop his professional services skills and is now a Service Delivery Director. This article from Zbiniew was written as a part of earning his PSCC-3 in 2020 and posted to LinkedIn at the time. We decided to repost it with his permission as a great example of how the program can help consultants grow into industry leaders.
I am sure that everyone has some experience with difficult conversations. We are human, we communicate, we agree and we disagree.
When I was looking for a definition of difficult conversation, I found one on www.cleverism.com where it is said "A difficult conversation is any situation where the needs/wants, opinions or perceptions of the involved parties are diverse, with their feelings and emotions running strong. Usually the reason behind such strong feelings and emotions is that they have a lot at stake and they dread the consequences such as a conflict."
I am working in consultancy for almost two years. Its new to me. Previously working as internal IT, I knew every person who I was communicating to. Now the situation has changed and most of my meetings are customer meetings, the most of my time I spent with customers. it’s important to keep positive, good relations with customers. They are the recipients of services you are delivering. You can deliver a solution, but it is also very important how that solution was delivered, the quality of the service.
In a real word when you deliver a service, drive a project, even if you do your best - issues can appear. Sometimes this is our fault but sometimes these are the issues caused by external independent factors and sometimes problems are caused by a customer.
At this stage, this is important to bring them to customer attention as soon as these are detected. “when you notice a misaligned expectation, act swiftly as the cost of resolving it will only continue to increase” – a quote from “The seven principles of Professional Services” by Shane Anastasi. I strongly agree with this statement. When that happened to me, I addressed it immediately.
I was delivering a service to a customer. We have identified requirements, we captured a good understanding of customer environment. We were ready to… it was great as long as we get into a testing phase. It turns that half of the functionality is not working as expected. That was caused by some interoperability issues between two environments.
We gathered our internal team: Project Manager, support teams, Business Relations Manager, Management. We discussed the issue, if work around is applicable, when solution could be fixed. It was a time to speak with customer.
I was the one who spent most of the time with a customer. During the project I also developed a great relation with customer so I thought I would drive a meeting. We met with a customer. I explained the situation. Customer was not happy, actually he was quite angry and frustrated. I let him vent for few minutes. This was not a great experience. I said that I understand his position and I demonstrated our empathy to customer. That has helped. Customer calmed down. I have explained a reason of why we are here. We proposed a walk-around that we were ready to deploy next day. We also made an estimation when a proper solution could be in place. We promised regular, daily updates on progress.
In that case, customer appreciated the honesty and that we informed him as soon as issue was discovered. I am sure that great customer relation helps here too. However, if I could choose, I would prefer not to have another conversation like this. I can imagine there not every difficult conversation ends this way.
I wonder what are your experience? Would you like to share it?
Written by Zbigniew Gradzki and originally posted on LinkedIn April 17, 2020