How much you could save with proper Project Management

Unfortunately there are only a few “before / after” researches available about the value of proper project management practices for the executing organizations, or what impact an undervaluing by the decision makers has. But a case from my practice (not a unique one !) may underline how much money often is burned by ignorance:

The case:

A software company had sold a fixed price project for implementation of a software system. They were now searching for an „execution“ project manager due to lacking own available capacities. On request I assessed the job’s requirements and complexity (Project Profiling) and suggested a qualified colleague from my network PM-Professionals.eu. The initial assessment meeting showed a “perfect fit”, only with the daily rate we could not come to an adequate agreement that would have made “economic sense” to the company. As a result a project leader was hired for 150 Euro per day less, well knowing that his qualification was lower.

I had the general manager consider that he had calculated the effort of project management too low, and I offered to conduct a Project Health Check for free after a half year of the project’s course.

Inventory review after six months:

My audit after six months discovered significant delays in project progress caused by underestimating the effort of program coding, breaks in resource planning and customer provisions, unforeseen issues with the interfaces, and latent, badly managed disputes about scope and deliveries. The atmosphere already was tending to withdrawal and safeguard positions. More trouble was ahead with the first testing milestone for the complete system as it was not yet ready.

The result:

In bare figures it looked like this:

• Savings with the project lead 6 months x 20 work days x 150 Euro = 18,000 Euro
• Project delay 6 weeks x 6 FTE, ca. 600 Euro/day each =  108,000 Euro
• Penalty at missing the integration test milestone 100,000 Euro (probability without recovery ca. 80%) = risk value 80,000 Euro
• Calculated surplus effort for recovery ca. 4 weeks additional 4 FTE = 48,000 Euro plus my salary 24,000 Euro.

The conclusion:

The decision to engage a cheaper, but not sufficiently qualified project manager therefore had set the company back 90,000 Euro already after half a year. To meet the hard milestone and avoid the penalty there were another 72,000 Euro. With respect to the risk value of 80,000 Euro and further delays to be expected without immediate recovery this was probably an economically reasonable option. In total surplus cost / margin loss of 162,000 Euro due to inappropriate saving on the wrong things at project start ! I did not ask how much project margin the software company had initially hoped for …

Very rarely there is a chance to conduct such an audit „on announcement“, because only very few executives want to show the weakness of making mistakes transparent. But the example shows – to my experience representatively – how low good practice in project management is still valued, and that a good project manager cannot cost as much as money is burned without him.

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