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How to simply estimate
the costs of poor project
Adrian Shaw (P3M Consultant)
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
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.
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.
To simply (gu)estimate the costs of projects going over-budget
and over-running the following small amount of data is
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
TNP = 100
APB = £10,000
APDO = 8 weeks
APCO = 15%
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 (£)
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
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
Illustration of TPCO and TPDO masking
The total project lost value TPLV = TPDO + TPCO, whereas the
variance against total project budget is TPBV = TPDO – TPCO.
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.