Who moved my contingency?
The human race is hopelessly optimistic. Thank goodness it is. If we knew in advance how difficult things will become, we’d abandon a lot of projects before we start. We’d never have had the get-up-and-go to beat the Neanderthals. Optimism is part of what it means to be human.
What helped us in the ice age, however, can come back to haunt the credibility of the modern project manager. Ever wondered why big-name projects always have a moment when the budget seems to unaccountably shoot up? High Speed Rail is just the latest. Before that there was the Olympics. In Edinburgh there was the Scottish Parliament followed by the trams. These are just the high-profile projects, almost every project everywhere experiences the same thing. It’s called optimism bias.
Here are some tips to counter it:
Back of the envelope. Make an estimate of how long you think the project should take and how much it ought to cost, using the best available assumptions. Then double it. Don’t argue! I know it couldn’t possibly take that long and there’s no way the Board will authorise that amount. But double it anyway. And just imagine for a moment that there might, just might, be a scenario where one of these estimates – time or money – actually happens. Even if it doesn’t, your mindset has been recalibrated and this is helpful. Contingency 100%.
Float the budget. You’ve refined the original estimate a little and now you mention a figure to your boss/client for the first time. Later on, when you explain this was just a provisional estimate, it won’t matter, it has stuck in peoples’ mind. It’s awkward but acceptable to change later. Contingency 80%.
Project manager engaged. First time that someone who will be directly accountable for delivering the project gets involved. A fresh look from experienced eyes immediately spots issues not previously taken into account. Feasibility and consultation begins. Contingency 60%.
Budget crystallises. The project is approved by its stakeholders. All major projects begin with big differences in stakeholder expectations. These differences have to be flushed out before a ‘proper’ budget can be set for both time and money. This is the point when you will suffer reputational damage (but not necessarily fatal) if the budget has to change. It’s wise to admit to a ‘formal’ contingency but hide the remainder of your contingency in your assumptions. Contingency 40%.
Project underway. First detailed, professional budget. Stakeholder objectives road tested at the operational level with people who will have to live with the project once your project manager has gone. Contingency 20%
First stumble. Unexpected problems arise. You have to drain your hidden contingency, but on the plus side you’ve probably got a signed contract for most of the project. Now you’ve got a genuine ‘contingency’. Should you have a smooth implementation, there should be no further budget pressure arising from misunderstandings or changes to the brief, but if you miss these targets you could be sacked. Contingency 15%.
Operational difficulties. Oops, something’s gone wrong with the execution; a competence or communication problem or an unexploded risk just detonated. Any further problems like this and you’re going to have to cut back the scope of the brief or you’ll overspend and or delay. Contingency 10%.
No time to quibble. Death of a thousand cuts. You’re on a treadmill with no time to enquire into the circumstances in which these problems arise. Lessons can be learned later. If you do anything other than focus on how to solve the problem, you risk missing your budgets. In effect, you are ‘paying’ for lots of little problems to just go away. This is what you thought your contingency was going to be used for, back in the day. Contingency 2.5%.
Pre-Finish. Now that the project looks like it’s actually going to delivery, lots of people, who previously hadn’t been paying much attention, come out the woodwork. Such fun! To a degree, it is discretionary whether you give them what they want. Tempting as it is to ‘play the ruthless project manager’, it will enhance your reputation if you agree. Most ‘users’ assess the quality of an implementation on this last little bit of the project, and won’t give you credit for all the previous hard work. Contingency 1.5%.
I once spent an afternoon on a £60m project arguing with the project manager that contingency should mean, in theory at least, that the whole amount should be left in the bank at the end of the project. His frequently repeated reply was ‘Contingency always gets spent’. At the time he seemed, to me, to be sanctioning sloppy project management but I now realise we were arguing about quite different things. It’s not that the contingency gets ‘spent’, it’s just that most people have no idea what they’re getting into at the start of a project. It’s called optimism bias.