SPRING 2017 / ISSUE VII
A P U B L I C AT I O N B Y M O R G A N S TAT E UNIVERSIT Y â€™S G R A D U AT E P R O G R A M IN PROJECT MANAGEMENT
COST MANAGEMENT: The nitty gritty
of cost dynamics in managing projects
COST NAVIGATION BY A FRANCHISEE Hidden procurement costs of an ERP implementation
Cost Management in Information Technology Projects
PM magazine | SPRING 2017
CONTENTS Message from the Editor
EDITORIAL MESSAGE Welcome to the seventh issue of PM Magazine which focuses on the important Cost Management principles of Project Management. The articles in this issue have come from the twelve-week initiative of the six students in the Masters of Science in Project Management: George Micheni, Sanjay Bapna Oghenekevwe Oberiko, Enid Choloh-Dukule, Oluwatobi Aderonmu, Seun Abiona and Fred Sosiah, and the instructor Dr. Monica Kay. The articles come from a variety of perspectives in cost management. In a highly informative interview with Joy Dukes, a Subway franchisee owner and entrepreneur, identifies the important role that cost management plays in starting a venture and keeping a fast-food operations profitable. In a similar vein, Fredrick Kinyua, a CEO of an auto service stop, explains the importance of customer relationship and how it impacts the costs and budget of the operations. Steve Nugent and Daniel Coleman focus on the cost management aspects for Enterprise Resource Planning (ERP) systems: Steve Nugent describes the cost management aspects of Implementation Readiness and Daniel Coleman, using a case, sheds light on the complexity of procurement of an ERP system. The importance of cost management in Information Technology projects is well articulated by Pretam Harry, CFO of Maryland Motor Vehicle Administration. Femi Ademola takes a deep dive into managerial accounting with a comparison of activity based costing vs. full absorption costing and the utility of full absorption costing in cost estimating and budgeting. Cost controls related to asset management are highlighted in an interview with Sandeep Sawant. In the healthcare domain, Heather Karabaich strongly makes a case for the importance of documenting change in scope and the implications on costs and the resulting profitability for a consulting organization. A good example of the tradeoff between cost and quality is provided by Anna Bradley. Femi Oshobukolah uses a case study on the implementation of a digital telephone system to articulate the importance of cost management for such implementations. Finally, Monica Kay writes humorously and informatively on the cost management practices in a college selection process for her daughter. We hope that you will enjoy reading through the articles and interviews and come to appreciate the importance of cost management for managing projects.
Sanjay Bapna, MBA, PhD
Morgan State University Professor and Chair, Information Science and Systems Earl G Graves School of Business and Management
1 Cost Navigation by a Franchisee Joy Dukes
3 Implementation Readiness Cost in Healthcare or Higher Education Steve Nugent
4 Hidden Procurement Costs of an ERP Implementation Daniel Coleman
5 Financial Management Tips For Shop Owners Fredrick Kinyua
6 Lowering Budgeted Project Costs Through Alternative Costing System Femi Ademola, CFA
7 The Price of a Successful Project Team Anna Bradley
8 Cost Management in Information Technology Projects Pretam Harry
8 M anaging Cost and Effect on Phase 1 Trials Heather Karabaich
E fficacy of Cost in Managing Projects Femi Oshobukola
10 Managing Assets within Cost Constraints Sandeep Sawant
11 Cost Management: A Parentâ€™s Humorous Overview of Sending a Kid to College Monica N. Kay, D.B.A., PMP
12 Student Team Biographies 13 Our Program & Links to PMI
SPRING 2017 | PM magazine
COST NAVIGATION BY A FRANCHISEE Joy Dukes, FMP, MBA Owner, Subway Restaurant
(LEARNING TO SWIM AND NOT SINK)
A franchise is defined as a right to sell a company’s products or services in a particular area using the company’s name. This article highlights the processes involved in setting up a franchise and how to manage the costs involved. Q1. How did you set up your franchise? At the initiation stage I created a franchisee typology which started with the process of creating a feasibility study for a business idea to answer questions such as, “What location would this kind of business work in? What is my customer base? Is there a need for the product or service you are bringing into the community?” I also analyzed the logistics, procurement, consumer relations, and financial planning for my operation. I was fortunate at that time, because several factors worked in my favor. I was at Morgan State University (MSU) where I opened my first franchise. I knew I had a great location, customer base and a dedicated audience. Those factors helped me obtain a capital (loan) that was needed to start the business. The beginning of my journey started with pre-work that included developing developing a business justification process to determine what type of business would match my desire to be an entrepreneur. In some respects, if you think of entrepreneurship, we often think of entrepreneurship as a person or an individual that comes up with something unique that fills a gap/demand and provides value to their community or consumer. For me, starting a business and having that entrepreneurial spirit, meant that I had to consider the fact that people, especially in the business world, often do not see franchising as though they are creating something new. As a part of my journey, it was important to maintain this entrepreneurial spirit even in the midst of doing something that was given to me. This meant accepting the terms of the franchisee structure that involved a brand, but still having an opportunity to exercise creativity and innovation to create a unique brand for my shop. I looked at what type of business owner I wanted to be, and I knew that I would be involved in the business as a business owner/operator. I understood that the cost of entry was not enormous in entering into a franchise model. The startup capital needed
would be something that was achievable and I could financially do this with my own resources and current credit positioning at that time, particularly in terms of getting a loan or financing by an external source. I wanted to start a business where the startup cost was low and I knew that the profit margin would be small. In understanding the cost dynamics, I wanted to build the business to be profitable while having the liberty to monitor and control it in some respects. The value chain had been worked out for me as a franchisee because factors such as logistics and procurement are already determined via the brand. Q2. What were the major challenges at the inception stage? Some of the major challenges I encountered in the startup phase or initiating stage included the buildout, which involved getting the physical facility constructed. One thing that Subway does for the franchise is the consolidated order. This includes placing one order which is comprised of all the resources you need for your store, that included construction materials, wallpapering, lighting, the sandwich unit, ovens, etc. All these items come in one pallet or crate of materials and is used for facility development at an estimated cost of $65,000. My first experience was challenging because my order was incorrect in the initial phase of construction. It was overwhelming because everything arrived at once. The coordination and logistics of getting the right material in the right place at the right time, and aligning it with the schedule of the general contractor posed a challenge. Once we had the facility completed structurally, another challenge we encountered was the process of getting the required licenses to start operating. There was little sensitivity to the cost of time an entrepreneur can lose by waiting to get all the required licenses from the government. This
also impacts the cost baseline because waiting to obtain the license impacts your ability to sell, which hinders loan repayment because revenue is not being generated during while you are not operational. Additional obstacles included setting up the human resources (HR) management system. Subway does not provide this function to the franchisee, they only provide the necessary tools to facilitate this process. Q3. What impact did some of the challenges have? Due to the standard purchasing size of materials and equipment provided to a franchise, there were cost impacts at the execution stage of the buildout for the structural facility. The estimated budget for the buildout of the structural facility was estimated at $90,000. The Subway franchise, requires purchase of their standard format regardless of the space (square footage) that was purchased even if the floor area left to be covered is small. As an example, franchisees must buy the whole pack of tiles which has high-cost implications to the budget and eventually leftover tiles are wasted. For my organization, this proved to be an overrun of about 2%, which is an accepted cost risk in the franchise world. Additionally, the inconsistency in the delivery of material for contractors delayed the startup phase. This impacted the scheduled completion date by a week and two days with a cost implication of having to pay back a business loan. This reduced the cash flow and delayed the business opening. The good thing is that I had budgeted for this
PM magazine | SPRING 2017
The tool provides us the value of our inventory in both physical count and dollars expended. It then looks at the projected versus actual inventory and variance. The variance shows how profitable we are versus how much we are losing. Some variances are tolerable (it is Âą 2% for my business), but when the range is exceeded, it calls for immediate action to correct that problem to locate the source of variance. Our profit margin is so small that you have to react to everything so you do not run at a loss. Everything has to be accounted for as a franchisee.
kind of risk by adding a buffer of $25,000 working capital as a cost contingency as the contractors can only work with what they have at that point in time. The repeated back and forth coordination between the availability of materials and getting work by the contractors had cost implications which increased the time frame to finish the build-out phase. The lack of having a balanced human resource (HR) management system in place led to a high turnover rate at the initiation stage of my business. There was no proper process involved in hiring associates to work in the store. There was just a rapid hiring process to open as soon as possible without a lot of consideration on types of employees needed. This was a challenge that could have been addressed at the interviewing and selection stage by human resource management if a system was in place. The cost of having to train new employees would have been lessened if there was a proper HR system in place. The selection and interviewing stage would have helped screen the prospective employees at that stage in terms of certain criteria, skill sets, and experience that fits the need of the business. Some employees left unexpectedly due to lack of required skill sets to fit in. Turnover for my franchise is a true cost to a business. Q4. How did you mitigate those challenges? I was able to mitigate challenges with the learning experience curve which was learning from the previous phases and applying this knowledge to subsequent phases to my other franchise openings. In terms of HR functionalities, I had to pull
back and put some tools and systems in place, based off of best practices I have learned from other successful business owners. Some of the best practices that I adopted, involved using HR portals, which streamlined selection and hiring, creating detailed job descriptions, conducting assessment tests and following an interviewing guide. Q5. How do you manage profit and loss versus keeping up with employeeâ€™s salary and inventory? In my industry, the two biggest expenses are costs of goods sold (28% - 32%) and labor (18% -24%). Even as a franchisee, I do not have as much control over the costs of goods sold because the value chain system of Subway takes care of logistics and procurement. We already know who our distributors will be. We do not have the privilege to negotiate prices. Costs of goods come from how I conform to policies and procedures to ensure that I have trained my staff on Subway food recipes. We have all the control over labor as a franchisee. There is no protocol or an agreement to determine who, what and how we hire. Managing labor costs with this business includes sticking to the minimum wage as established by the state of Maryland (about $8.75). Our profit margins are not large in terms of the products that we sell. The ability to give premium wages is not there. I try to keep my employees trained well and keep the cost of the hourly wage as low as I can (I adhere to what the government mandates) and schedule employees to avoid employee overtime. We have a great tool to monitor inventory.
Q6. How does cost influence your decision making? It is relevant but it is relative. It is relevant because I am selling a brand and we are under a protocol of what the market charges. Although I am an independent operator of a franchise, I am restricted as to how much we can price the item based on what the market says is reasonable. The idea of what it costs versus what I would do is controlled because I am in a franchise organization. I am always conscious of making sure that I know the cost of materials so that I can minimize costs so as not to influence my pricing. As a franchisee, we are in a controlled pricing environment. I absorb any increases in cost without responding by increasing my prices. We are competitors but we are not competitive: in terms of pricing, we do not compete with other Subway franchisees. The only time costs influence my pricing is when there is inflation in the price of food items. Q7. What principles and strategies do you apply to effectively run your business? I subscribe to the school of thought that says happy people are productive. Incorporating a team player spirit always gets the job done along with getting to know the team beyond the four walls of the business. Strategically, I manage value and culture. I believe that when my employees are happy it will be evident in their level of performance and service. This results in increased sales for my business. Additionally, I make sure that I have good ethical practices because I am concerned about our customers and also our employees. If they are treated fairly, they will take care of the business and the by-product of that effort is the profitability. This strategy helps motivate our employees to be productive. As a result, we produce more goods and services which yield high-profit margins for the business. As a franchisee, I have the benefit of experience in knowing how to effectively manage costs as I open new stores. I have the skills and know how to swim in opening stores for Subway as a franchisee.
SPRING 2017 | PM magazine
IMPLEMENTATION READINESS COST IN HEALTHCARE OR HIGHER EDUCATION Steve Nugent Senior Consultant Navigator Management Partners, LLC
Implementation readiness cost of an Enterprise Resource Planning (ERP) in Higher Education or Healthcare requires a lot of groundwork. Just to address the subject directly demands discussions on implementation readiness, for ERP, for those two industries.
IMPLEMENTATION READINESS: Let’s put some boundaries around the implementation readiness concept. First, the term itself implies that this type of activity takes place before the system is installed. It is worth pointing out that this period begins as soon as an organization makes the decision to implement an ERP. The window for conducting implementation readiness activities spans from decision-to-replace to the day before go-live. From the perspective of tracking costs related to implementation readiness activities, the timeframe in which those costs occur is based on the timespan. In addition to understanding the timeframe, we also need to understand the tasks, or at least, the type of tasks that may exist under the term “implementation readiness”. Often that term comes up around an Organizational Change Management (OCM) perspective and is intended to provide the project team with an assessment of how readily the coming change of an ERP package will be received. Most would agree that OCM task falls under the scope of implementation readiness. For purposes of clarity, let us consider OCM to include tasks primarily geared at communication, buy-in, training and other tasks supporting people in navigating the change. The “people” side is only one of the three critical components of an organization. The other two components commonly discussed include “technology” and “process”. For argument sake, assume technology includes hardware, software and the condition of data sources. It is quite easy and appropriate, to inventory hardware and software from an implementation readiness perspective and make plans to fill gaps that were identified. Work in this area that takes place before go-live, including costs, belong in the “implementation readiness” bucket. Now let us examine the issue of data quality. Many organizations find that key data assets need to be cleaned before they can be moved to the new ERP. The amount of cleansing available may very well overwhelm implementation resources and therefore one strategy for prioritizing these efforts is to rank data in order of importance and work on the highest priority first. For example, in higher education, you
would expect to clean student data and course data first. In healthcare, you would likely want to address patients, procedures, and the item master. The cost for data cleansing fits in the implementation readiness bucket. The process, the third component, may also present opportunities for implementation readiness work. Admittedly, this can quickly blur with work in OCM since making people aware of new processes could also fall under the “people” side. That said, tasks like documenting the current state, Lean Six Sigma, and other efforts focused on understanding the processes in advance can be very beneficial. It is important to note that in this case, the timeframe for getting specific benefits from understanding the processes is between the decisionto-replace and when the implementation vendor arrives (vs. an actual go-live). The reason for this is that once the vendor arrives, the money being spent is now arguably aimed towards direct implementation instead of implementation readiness. Though this may not be an exhaustive list of tasks that can be considered as implementation readiness, it provides enough background to offer a common understanding of those tasks. This section also covered the timeframe in which those activities occur. Those two components, the work, and the time window allow the costs to be tracked.
ENTERPRISE RESOURCE PLANNING (ERP) SYSTEM Two main points needed to be ironed out about the term ERP scope. First is the actual scope of functionality being implemented and second are the interfaces required by that scope. ERP’s come with such a broad spectrum of functionality that understanding what any healthcare or higher education organization is going to implement is the first step in being able to label work as “implementation readiness related”. The second step is to understand what interface or other work is required because of “what is in” and “what is not” in the scope. For example, if HR functionality is not in the scope of the ERP, but payroll is, an interface between HR and payroll should be considered as inscope. On the other hand, since HR is not in-scope, if the HR department is independently pursuing a performance management capability that would not be considered in-scope. As is always the case in project management, watching for scope creep is critical as it is a direct influencer of your cost management activities for your project. The lesson learned from this discussion ensures that PM’s stay cognizant of scope to accurately assess if a task falls into implementation readiness for the project or it is just a business expense for individual departments. HEALTHCARE AND HIGHER EDUCATION We have covered the timeframe, task types, and scope of what could fall into implementation readiness. It is also important to cover the landscape of healthcare and higher education. The points below
relate more to the extent to which organizations in those industries may pursue certain implementation readiness activities based on estimating the cost of such activities. Both higher education and healthcare frequently have governmental funding sources and both are often non-profit organizations. These two factors place diverse types and levels of scrutiny on expenditures that are not immediately obvious as a benefit to either the student or the patient. That certainly seems reasonable especially when it is often difficult even for for-profit organizations to see the wisdom and value in the implementation readiness tasks. Why do we need it? Enough research exists on the efficacy of implementation readiness tasks for healthcare and higher education organizations to support a robust implementation readiness set of tasks. Some of that research explains that the cost-avoidance of a well-implemented system (vs. a poorly implemented system) often pays for itself. Given the considerations above, any organization serious about reaping the benefits of a well-executed implementation readiness plan should estimate an additional 25 to 30% of the total budget. The estimate provided is most closely based on analogous estimating. Direct personal experience, research on the topic, and information gathered from consultants tend to confirm a range of not less than 20% of costs just as a bare minimum baseline. The higher percentage selected here is a reflection of adjustments made both for industry variations and targeting better than bare minimum results on change readiness work. So, for example, if the initial total costs appear to be $10 million for a full implementation, an additional $2.5 to 3 million can be secured to support what will likely be a much more effective and long lasting ERP system. In terms of cost management, many of the activities of the “ERP Readiness” space also require consultants or other outside support. This tends to make tracking costs a bit easier. If the plan is to also try to capture the direct cost of employee participation, then the project manager will need help from payroll and other accounting support units which generally requires project/cost accounting capabilities that are often not well-developed in higher education and healthcare industries. Due to this shortfall in capabilities, conducting cost control will be tied to the cost of tasks that are performed by outside resources.
PM magazine | SPRING 2017
THE HIDDEN PROCUREMENT COSTS OF AN ERP IMPLEMENTATION Procurement processes are critical in project cost management. It involves creating a request for proposal (RFP), requests for quotation (RFQ), request for information (RFI) and managing vendor relationships. A good project team should be able to deliver value to the project in terms of cost savings. This includes making sure that prices charged are cost effective and services offered are consistent with the specified purpose. Effective procurement ensures that goods and services procured meet requirements. It also ensures that the terms and conditions of the Daniel Coleman contract agreement are met. Inappropriate and inDirector of Procurement, adequate procurement processes are a recipe for cost Baltimore City Community overrun vis-a-vis budget overrun. Let us consider College the point of total assumption (PTA) which is the price dictated by a fixed price plus incentive fee contract (FPIF). When it is exceeded, the seller bears the cost overrun. Any costs exceeding the PTA is considered mismanagement of the contract. The seller takes the cost risk over and above the PTA. When the costs hit the PTA in an FPIF contract, the maximum the buyer can pay is the ceiling price. However, if the seller completes the work at lower cost, there is an incentive of maximizing the seller’s gains. As the PTA is reached, the project risk increases and the faster the project is completed earlier, the better it is for controlling adverse cost deviation. In a real-world project scenario, the Budget at Completion (BAC) should be closely monitored as it is beneficial to keep it under the PTA. Example: Point of Total Assumption = ((Ceiling Price - Target Price)/Buyer’s share of cost overrun) + Target Cost Target Cost: 100,000 Target profit: 10,000 Target Price: 105,000 Ceiling Price: 110,000 Share Ratio: 80% Buyer and 20% seller PTA = ((110,000 – 105,000) / 0.80) + 100,000 = 106,250 This term PTA is used in project management when managing FPIF contracts. The PTA is calculated because actual cost is the only finance measurement used when executing the contract. This measurement is compared with the cost baseline to calculate the Cost Performance Index (CPI). The Cost at Completion or Estimate at Completion (EAC) can then be estimated. The buyer pays the ceiling price if EAC exceeds PTA. And any additional overruns beyond PTA will cause a dollar for a dollar decrease in profits for the seller. If the profit decreases, the rate will become higher as the actual costs exceed the ceiling price and the seller may stop work on the contract. The PTA, in this case, is relevant because, in the end, it helped to determine the best vendor cost option for our organization. In the fall of 2015, the college decided to make a determined push to complete its Enterprise Resource Planning (ERP) implementation. It established a timeline for the project estimating its implementation to occur on or before January 1, 2019. The Student Financial Aid (SFA) module was prioritized stipulating that it must be the first module of the acquired system to go-live. The SFA was prioritized because 65% of the college’s students required financial assistance. The SFA services were being provided by a third-party vendor whose Financial Aid (FA) product was approaching its end of life cycle and would no longer be supported after July 1, 2016. The FA vendor provided the college with three choices, 1) install its new release of its FA product or 2) extend its present product without maintenance support or 3) select a different SFA vendor to provide FA services to the college. The college considered its options in relation to cost implications and the need to have SFA services in place for students prior to the spring semester of 2018. The college elected to extend the life of the software program by purchasing extended software maintenance services for a period of two years. This now meant that the program support services would expire on December 31, 2018, without any additional support available. This extension of services would cost the college $200,000 per year. Additionally, it placed the college in a position with the project where it had no other option but to have the solicitation for the ERP system specifications developed and approved by the State Oversight Agency (SOA). The next step would be the publication and advertisement of the solicitation for a minimum of forty-five days, conducting
a pre-proposal conference (a meeting where the prospective sellers are invited to ensure that they have a clear understanding of the work in the procurement documents), evaluating of technical proposals received from prospective vendors, oral presentations, cost pricing analysis and recommendation of award to the SOA for approval which would be presented to the State Board (SB) at a minimum of forty-five days prior to approval before the “authorization to proceed” could be given to the successful vendor. The college’s march towards an award under these circumstances was halted by the SOA after they required significant changes to the proposed solicitation without which the agency would not approve the publication of the proposed so-
licitation as it stood. The SOA required consolidation of projects into one and an on-premise solution rather than having the ERP and two subprojects: Identity Management and Document Imaging systems, and a cloud solution. Moreover, the SOA mandated a consolidation of all three components into one solicitation. The solicitation was published as directed and as a result of the consolidation of the ERP and the two contemplated component projects into one solicitation led to only one prospective vendor responding. The vendor’s response was preliminarily evaluated and found to be responsive. Upon notification of this finding to the SOA, it mandated that the college cancel the solicitation because it could not support one proposal received for this solicitation before the approving SB whose approval was essential due to the anticipated cost in excess of one million. This decision by the SOA left the college between a rock and a hard place. The college was still constrained by the SFA service that would expire without a replacement at a firm fixed price in the future or have to recreate a new ERP solicitation with substantial changes to the original specifications as published. It was determined by the ERP oversight committee that due to these new parameters, the window of opportunity to craft a new solicitation to go through the award process and have enough time to implement a new FA system was virtually impossible. A solution was needed or else the college would have to abandon the ERP program altogether. The solution would require a product that could be put in place as a “stand alone”. It would also include a solution that could be rapidly acquired through the procurement process, be integrated by the selected successful ERP vendor, and allow the college to fulfill its financial requirements to its SFA clients thus sustaining the viability of the college as an institution. In the end, a procurement solution was found in a FA product provided by the State Department which the college could download for free. It was a stand-alone product that could be integrated into the perspective successful vendor’s product with certainty due to the industry programming requirement. This student financial system had an interface and interconnectivity with the State Department for the transference of student financial to all institutions of higher education that provide and administer SFA. Additionally, this solution saved the college an additional cost of $200,000 for an extension of an additional year of service with the vendor whose contract was set to expire on December 31, 2018. In conclusion, the commercial off-the-shelf (COTS) procurement solution provided in-depth operational activities in completing the ERP system as originally contemplated by the stakeholders. The purchase helped the college by significantly reducing the investment of faculty and staff time and resources, as well as the cost of appropriated funding that exceeded five million dollars at this juncture of the project.
SPRING 2017 | PM magazine
Financial Management Tips for Shop Owners– Fredrick Kinyua, CEO Freds Auto Service
Costs of Running an Auto Shop
Explain the cost of customer complaints? When a customer complains, the first direct cost any shop owner will incur is a loss of “your” time. This is the time you spend listening to the customer, discussing the resolution and following up with the customer to ensure that their complaint has been resolved. As a part of lessons learned, you spend time internally discussing with your technicians and advisors on the cause, solution and prevention of future complaints. Afterwards, you analyze the cost of customer attrition; by understanding how you handled the customer complaint, and recognizing the high probability of losing the customer and other satisfied customers which may lead to additional marketing costs to replace the lost customers. Additionally, you must take into consideration the cost of repairs, economic damage to your reputation, damage to employee morale and the loss of income. To curb these complaints and reduce costs, I hire the best technicians and invest heavily on their training so as to minimise customer complaints.
How do you ensure that you have the right parts to avoid comebacks? Comebacks are cars that return to the shop with an error. You can never eliminate all comebacks but you can reduce them to save on cost. It is not just the cars that return with comebacks but also the loss of time from any workflow error. Comebacks create a cost of quality which may be due to internal or external failure cost. As the CEO of my business, I can determine the resources that will prevent future comebacks and will result in lower prevention costs. Internal failure costs are incurred before I deliver the vehicle to the customer. My technicians will go through the vehicle, to repair and correct any defective areas. It is very efficient to maintain communication between the technician and service advisor so as to identify miscalculations and any defective part to avoid incurring extra expenses. External failure costs are incurred if the customer returns with warranty claims and complaints that the vehicle repairs are not up to standard. The other quality measure I have taken is prevention cost; I seek quality and durable parts that will be reliable and compatible with the customer’s vehicle. For example, I had a situation where most exhaust problems were from a particular supplier. I took action and stopped buying exhaust pipes from this company. The cost of purchasing parts should not be more than 70% of the total charge to the customer. Material cost is probably one of the largest expenses that will directly affect profitability and your bottom line. It is advisable to source from suppliers that offer differentiating and quality parts at a cost that will benefit the shop owner and the customer. How do you Budget? I mainly use expert judgement to estimate my budget due to the fact that I am an experienced business man in my field. My cost activities include a bank saving accounts for all potential expenses that I may acquire. I set up weekly automatic transfers into those accounts either on Fridays or Mondays. Listed below is a cost management example of the savings breakdown:
How often do you offer discounts? As a shop owner, your focus should be on offering quality repairs and customer service. Discounting to make up for poor profits is a path that may have long lasting consequences in your cost curve. Do you ever notice that your best loyal customers never negotiate your price? Those are the customers who need to be rewarded. The common mindset and mistake that owners make is attracting and maintaining customers by offering discounts. I disagree with this approach because as long as you are doing the right thing and hiring the best people, customers will be retained. When a customer asks for a discount, I look at their request as a buying signal. They are already sold on the recommended services and are now testing you for price integrity or they are negotiators looking for the best deal. Rather than lowering the price, let’s say from $900 to $850, I tell the customer to authorize the service and I will provide them with a voucher for a free oil service on their next visit.
• Equipment: $250 per week. Includes a list of equipment and estimated costs, prioritized in order of needs, such as: 1) Exhaust Hoses - $800, 2) Transmission Jack - $1500, 3) Welder - $1500 and so on. This allocation method allows me to buy equipment on a cash basis. By continuing this process for 52 weeks a year, you will have the capital needed to make purchases for equipment or repairs on your equipment. If the account gets higher than you think it needs to be, cut back the amount you transfer. • Taxes: Taxes are indirect costs that ultimately affect my business internally. Estimate your tax liability and how much your quarterly estimated taxes will be. Let’s say it is $5,200 per quarter. Since there are 13 weeks in a quarter, you would set up an auto transfer for $400 per week ($400 x 13 = $5,200). This way, when the quarterly estimate is due, you’ll have the money set aside in the account to pay for it. • Miscellaneous Needs: For example, if you’re saving up for a new location, consider using your current savings account as the new location account. Similarly, set up an auto-transfer of $500 per week (if cash flow allows) into this account. After 2 years, you’ll
have $52,000 saved! That’s a good start towards a new location, for moving, etc. • Advertising Cost: Since a shop owner is more likely to have competition around the community, we have to keep a consistent stream of new customers and invite potential customers. We accomplish this by identifying our customers and investing in marketing and advertising programs. If you have a general repair shop, a good place to start is at 4-5% of your annual sales. If you have a transmission shop, you may find that you need to increase your budget to 6-8%. Bear in mind that your budget needs to be a percentage of your “targeted” sales, not your current sales. For example, if you are currently generating $800,000 in annual sales, but your target is $1,000,000 in sales, then your marketing budget would need to be 4-5% of $1,000,000, not $800,000. Cost estimating should be applied to predict how much a shop owner will budget on advertising cost. With the above budget, shop owners are able to get an overview of the periodic and total cost of running an auto shop. Cost management provides a solution to calculate productivity from a variety of resources including labor, price rates, materials and equipment to ensure quality of services. As the CEO, I hold responsible my technicians and I for any comebacks that may occur and take appropriate management actions to ensure our roles and responsibilities are met. The main goal is to enhance customer satisfaction and provide the right tools that ensure that customer relationship continues.
PM magazine | SPRING 2017
LOWERING BUDGETED PROJECT C O S T S T H R O U G H A LT E R N AT I V E COSTING SYSTEM There have been a lot of arguments on the cause(s) of project costs overrun and why several Project Managers do not meet budgeted project costs. While it has been recognized that higher project costs than budgeted would lead to either a higher pricing or lower profit than planned, one of the problems of project costs overrun is due to project costing approach adopted by the project manager. In setting project costs, there are Femi Ademola, CFA several issues for consideration such as the value of the Executive Director, projects to clients, clients’ response to cost overruns and Corporate Finance of price changes, and competitors’ response. BGL Capital Limited In addition, it has been established that it is possible to reduce project costs through the adoption of a more appropriate costing system than the most currently used. The below stated project presents an experience in successfully reducing project costs through the adoption of the Activity Based Costing (ABC) in place of the traditional absorption costing. Determining project costs Project costing by most project managers is largely intuitive and routine. However, project costing should be a fallout of the overall strategy and whether you are a cost leader or a differentiator. But when this is not available or made explicit in the corporate strategy, then there is a need for separate project costing mechanism.To manage the complex nature of costing, project managers need an effective, multidimensional mechanism to guide their analysis. In addition to encouraging systematic thinking, such a costing mechanism would underscore the differential advantage available to strategically prepare project costs. Full Absorption Costing: Full costing model is the traditional method of costing. It is the most commonly used model because of its simplicity and ease of understanding. It is consistent with absorption costing techniques since it adopts a conservative approach to ensure recovery of fixed costs. Absorption costing was formed in compliance with financial reporting requirements; hence it often allocates costs based on single-volume measures, such as direct labor hours, direct labor costs, or machine hours.These measures are usually arbitrary and not related to production. However, the approach provides a relatively cheap and convenient means of complying with financial reporting requirements. Activity Based Costing: Most project managers use the traditional absorption costing system which allocates cost in three basic steps: Accumulate costs within a production or service center; Allocate service center costs to production center; Allocate the revised production center costs to various projects and services. Costs derived from this cost allocation system suffer from several issues which result in distorted costs for pricing decisions. For example, they allocate the cost of idle capacity to projects which affects the total project costs. In order to remedy these cost distortions, many project managers are adopting the Activity Based Costing (ABC) for cost allocation purposes. In contrast to the traditional approach to cost-allocation, an ABC system will accumulate overhead costs for each activity; and then assign the costs of the activities to the projects or services that generate that activity. Expectedly, the most critical aspect of ABC is activity analysis which is the process of identifying appropriate output measures of activities and resources and their effects on the costs of producing a product or service. In addition, an ABC system is not inherently constrained by the tenets of financial reporting requirements; rather ABC system has the flexibility to provide special reports to facilitate management decisions regarding costs of activities undertaken to design, produce, sell, and deliver our projects or services. Whereas absorption costing focuses on accumulating costs through organizational units, ABC’s flexibility allows it to focus on accumulating costs through
several key activities; thus, providing superior cost-allocation information, especially when costs are caused by non-volume based cost drivers. While the problems associated with ABC are noteworthy, especially the implementation costs, when implemented properly, ABC will yield benefits to managers, business partners, and clients.The project below demonstrates an example in of activity based costing. The Hydraulic Resistance Machines Project The hydraulic resistance machines project is a special project to bring a new range of equipment to schools for which I was the Project Manager. For the project, the standard cost for producing each machine was estimated at $1,500 and just like a budget, this standard cost is essentially an estimate of what the company expects the project to cost under a set of assumptions, including the fixed overheads that were only arbitrarily apportioned based on actions that the project managers were expected to take. The breakdown of the total cost of producing the hydraulic resistance machine was as follows: Project Cost for the Hydraulic Resistance Machine Direct Materials 15 kg of steel @ $50 per kg 10 kg of plastic @ $15 per kg 20 kg of brush @ $1.5 per kg 20 metres of wire @ $1 per metre
Direct Labor: 20 hours @ $15.50/hr. Variable Overhead of 20 hours @ $8/hr.
$ 750.00 150.00 30.00 20.00
Fixed Overhead of 20 hours @ $4/hr. Expected Total Project Cost:
Therefore, for the order to produce 100,000 units of the hydraulic resistance machine, a total project cost of $150,000,000.00 was set. Actual project cost However, the degree of objectivity in setting cost standards is always a suspect. The standard project costs may be difficult to attain and therefore more or less realistic depending on its purpose. Direct costs (direct materials and labor) are easy to determine as they are only determined by the quantity used and the price (cost or rate) per unit. However, indirect costs use the time spent and overhead absorption rate. In most cases and in this case especially, standard cost is simply the average cost of producing the machines. And since the company was also involved in other projects that share the same factory and facilities with the hydraulic machine project, it was necessary to determine whether it was optimal to share the cost of the overheads across all projects based on labor hours. The project manager’s curiosity led to discovering that the activities involved in the hydraulic machine project only consumed an average of 22% of total overheads of the company. Therefore, based on the push from the project manager, rather than apportioning overheads based on labor hours, the overhead costs for each activity were apportioned based on the percentage of activity carried out on each project, an Activity Based Costing approach. The overhead per unit and the total unit cost was then derived and is depicted on page 7. The project cost per unit to produce each hydraulic resistance machine was reduced to $1,472 and the total actual project cost fell to $147.2 million dollars from the budgeted $150 million dollars.The project team not only prevented the overrun of budgeted project costs but also reported a lower overall project cost.
SPRING 2017 | PM magazine
Activity Total Cost ($) Machine set up Material handling Quality testing Packaging Total
14,475,381.23 56,312,460.77 5,735,528.41 23,425,105.51 99,948,475.93
Total units produced Overheads per unit Direct materials per unit Direct labor per unit Cost per Unit
Hydraulic Resistance Machine ($) 2,983,536.91 12,159,320.23 1,688,794.48 4,368,348.38 21,200,000.00
11,435,551.17 43,923,719.40 4,014,869.89 18,974,335.47 78,348,475.93
21 22 30 19 22
100,000 212 950 310 $1,472.00
Project managers impact their ability to meet budgeted project costs. It is also recognized that the use of absorption costing for projects may be misleading since it is limited in the provision of accurate cost information; hence the project budgets may be based on inaccurate estimates. While a sound standard cost system which provides analytical information for standard costing and variance analysis may be used, it is not an optimal method of project costing since it was created mainly in compliance with financial reporting requirements. Therefore, it is recommended that project managers should consider the introduction of ABC system to replace the common absorption costing for accurate cost information and better project pricing.
THE PRICE OF A SUCCESSFUL PROJECT TEAM I was hired on my first project as a cost-saving measure. The idea was brought up as part of the project’s cost containment plan: find paid interns who could perform simple, yet time-consuming, operational project tasks. This source of relatively inAnna Bradley expensive labor would free Project Manager, Mount St. Mary’s up the time of more experiUniversity enced and expensive consultants, and in exchange, the interns would gain valuable work experience. Over the course of a semester, my peers and I took on tasks of increasing responsibility (from status reports to leading project plan calls and stakeholder presentations to developing and executing training plans) and our combined efforts reduced the overall project budget. At the end of the semester, my peers and I were either hired on to the project full-time or moved on to new opportunities. Since then, attempts to replicate this initiative have had mixed success, which stressed the cost containment plan because of the need to hire additional full-time consultants. This taught me one of my first major project management lessons: if you sacrifice the quality of the people on your team to save money, it will likely cost you more in the long run. When it comes to people, as with all else, you usually get what you pay for. Exceptional and motivated people can be found at a low cost, but it is hard. This lesson is important to keep in mind if you are working with an extended project team. On the Enterprise Resource Planning (ERP) implementation --when I first joined as an intern-- it was critical that we maintained a strict cost containment plan because of our relatively small organizational size. Our size meant that our budget was smaller than many other projects carried out by our ERP software provider. To address this, we partnered with a consulting group that gave us the most competitive price. Initially, this was a mutually beneficial arrangement: they added another implementation to their growing resume, and we saved money. However, in retro-
spect, this vendor was the cheapest for a reason, and the money saved up-front was soon lost to a vendor that often struggled to understand our organizational culture and also meet the needs of the project team. Internally, our employees did not have the bandwidth or experience needed to take charge of the project and were left dependent on consultants who were unable or unwilling to take charge and drive the completion of critical path tasks in the project plan. The result was confusion among stakeholders and missed deadlines. The situation only improved by bringing in several full-time senior consultants who were more experienced and took over project coordination and tasks. This is where the trade-offs between the cost and quality of team members become clear when planning human resource management. A classic example is where we had to use a consultant who cost twice as much as the internal resource, to develop one of our project integration documents, but who completed the design of integrating it to our new ERP system well ahead of schedule. In hindsight, had a more expensive and conversely more experienced implementation partner been chosen, project milestones may have been achieved on time. The increased cost would have resulted in an increase in overall project quality and higher stakeholder adoption. On the other hand, the project’s steady stream of interns was a successful method of finding team members who didn’t push the budget to its limits. The idea behind the internship program was simple: interns work at a less expensive rate than professional consultants. A mid-range consultant can easily cost $200 dollars an hour, but a paid intern costs closer to $25 dollars an hour with overhead. In other words, based on hourly rate comparison in percentages, the consultant would cost 87.5% while an intern would cost only 12.5%, translating into a cost saving of 75%. While interns require up-front investment for mentoring and reviewing their work, there is still the opportunity to save a significant amount of money by either reducing the consultants’ time on the project or by allowing the consultants to focus on more complex tasks. However, not all interns are created
equal, and some may be better served to move on to other ventures. While my cohort of interns was highly productive, our replacements were of mixed quality. This, combined with their need to be ramped up and trained just as the project was reaching the crucially busy testing stage, it took more time away from consultants than it should have. Hours were spent in working and reworking deliverables and mentoring students who were not able to keep up with the fast pace of the project, simply because their class schedule would not permit them to be there full time and they missed weekly meetings, or because their learning style demanded more close attention than experienced team members could provide. We lost time and money since we had to spend about half of the eight hours required to work per day, attempting to bring interns up to speed who simply should not have been placed on the project in the first place. This translates into 50% cost of lost time per day, an equivalent of $100 per day cost for one intern only. With the cost lesson learned, we did not make this mistake again. We still hire interns, but we carefully screen them first. Offering internships to students is only helpful to both parties if you maintain unflinchingly lofty standards for the students you recruit; otherwise, the risk is not worth it. You cannot afford to have a mentality of helping students gain experience, no matter what the drain is on your permanent resources. If you are planning your next project, or even if you are in the middle of one right now, do not be afraid to get creative about how you assign tasks to your team. Ask questions such as, “Do you need to hire a consultant to tackle that task, or can you have a permanent employee do it if you backfill them or provide them with training? Can you hire a paid intern? Can you give your lower-level employees opportunities to grow their skillset?” With that said, do not ask your team to perform tasks they are not capable of without providing additional support, and do not be afraid to hire outside your organization if the need arises. Your creativity will be wasted if you choose cheap resources simply to save money in the short term instead of taking a more strategic view.
PM magazine | SPRING 2017
COST MANAGEMENT IN INFORMATION TECHNOLOGY PROJECTS
Pretam Harry, MS, CPA, CNE, PMP Chief Financial Officer, Maryland Motor Vehicle Administration
This article explains the different steps or processes in managing costs in information technology projects from the initial planning phase towards measuring the actual cost performance and project completion. Project managers should always perform qualitative risk analysis in order to rank, prioritize risks and understand the cost impacts of these risks. Additionally, important project information needs to be communicated effectively through available channels in ways that it is received and understood.
Q1: What is the nitty gritty of cost management in Information Technology (IT) project management? Cost management is one of the major keys to a successful project. As a Chief Financial Officer (CFO) for Maryland Motor Vehicle Administration (MVA), you have to do variance analysis on the project milestones to answer questions such as, “Where are you now? Where are you supposed to be and what is different?” As a project manager (PM), you have to mitigate costs, especially if the labor cost is too high in one area. You must allocate your resources according to the timeline of the project. Q2: What is the importance of cost control in Information Technology? Experienced and highly successful PMs of large complex projects intuitively understand that there is a constant problem in managing cost on IT projects. You cannot plan for everything because there is always the unknown risk. When they do, you must be ready to react quickly. This means that prioritizing your project’s requirements, scope and constraints ahead of time becomes important in managing the cost of an IT project. Q3: As the Chief Financial Officer have you ever had a problem with the cost overrun? Yes, we had a problem of cost overrun with an IT project recently. The problem revolved around the KIOSK machine project. When we started the project, we did not plan to print the vehicle registration sticker as part of the project deliverable. Well into the project we decided to do a change order to produce the sticker at the KIOSK machine. Because of the additional scope, the project not only took longer but cost more. From a project management standpoint, the original project was unsuccessful
and created many problems for the project team because we had to change the scope and go back to the drawing board to ask for more funding for the project. Q4: What leads to costs being mismanaged in an Information Technology project? One issue that every project manager will encounter when managing is not paying attention to milestones or managing the risks involved in your project. For example, a project with an expected delivery for March, which has not been implemented on time, will lead to cost overruns, where you must keep resources on the project to get it completed. As a project manager, another driver of cost mismanagement is not having effective communication. Effective communication with the project team or board is very important because the lack of communication leads to mismanagement and possible cost overruns. For example, with open communication, a great project design, and project plan you are likely to mitigate certain risks quicker because of several factors: more expertise, examining milestones regularly and providing inputs into possible solutions. With increased risks, there is a possibility of increased costs, and mitigating the risks as early as possible reduces those costs. Q5: From your experience as the Chief Financial Officer, what are the major causes of project failure? Poor design is a cause when IT projects lack design elements. We should do more work on the design and requirements gathering before we start a project. PMs seem to be in a hurry to start the project without giving much thought as to how the application is to be built. In the construction world, the engineer and architect develop requirements and designs before they break ground. Inexperienced PMs are another cause. Project managers have many responsibilities for the successful initiation, planning, design, execution, monitoring, controlling and closure of a project. You must assign people to management roles who have the matching experience to successfully perform their duties. In some cases, and perhaps more often than not, inexperienced managers are given projects. They may be very capable of managing projects, but the key is to keep them at a level where they can succeed. Otherwise, you will set them up for failure. On the other hand, there’s nothing wrong with a challenge, just do not make it beyond their reach. Mismanagement is the last factor because, as a project manager, you are the symbolic parent and champion of the project. Every project needs close monitoring and to make sure everything is going as it should be. It is important to check in frequently with your team and offer your assistance when things are moving as planned.
Managing Cost and Effect on Phase 1 Trials Project Managers (PMs) work with highly intricate budgets, and therefore, it is our duty to effectively and efficiently review, manage and close-out those budgets within a timely fashion and as close to the original scope as possible. Heather Karabaich These are the budget chalSenior Project Manager, PAREXEL International lenges and risks we face for every project, so we must take the budget management task seriously for every project. As a PM within clinical research, I am involved with the review of the budget from the time of study award. Unfortunately, there is not sufficient or complete information available at the time of the study award to appropriately create a comprehensive budget, and this is where I cannot stress clear client communication enough. It is extremely important to clearly and effectively communicate to a client on assumptions related to details due to lack of detailed information. If the lines of communication are open from the
beginning, this can lead to not only a more successful project but also an elevated and valued client relationship. Once the necessary details become available for a budget, it is imperative that the PM goes back to the original budget and documents any changes in scope that are identified. From that point onwards, client approval must be obtained based on contract specifics and the budget revised accordingly. When the budget is accurate with the most currently available information, it is the PM’s responsibility to appropriately manage that budget. One rule of thumb that a PM must always remember: if it is not documented, it did not happen! Having a verbal discussion with a client regarding a budget impact or change in scope does not constitute approval to proceed if the PM does not follow-up with the necessary summary documentation of the discussion (i.e. email summary, telephone report, etc.). I created a change in scope log and documented all changes throughout the study until the threshold per contract for a formal change order was triggered. Between the time of client approval of the changes and the formal change order, my
primary client contact changed. My new contact rejected the change order, which was no small amount, and refused to approve the change order despite the confirmation that the previous contact approved the changes. Luckily, I had the necessary historical documentation to provide the client’s senior management to move forward with the change order. If that documentation would not have been available, my company would have lost out on thousands of dollars of completed work. In the end, the client was very satisfied and thankful of the detailed documentation that was provided. Budget management is one of a PM’s primary responsibilities, and we owe it to each client and project to take on this responsibility earnestly and proceed with the utmost detail and respect.
SPRING 2017 | PM magazine
Femi Oshobukola Director of Finance, American Foreign Services
Efficacy of cost in managing projects: Implementation of a new telephone system
Measuring the success of a project entails completion at specified date and cost. Successful completion requires implementation of major key factors which are funding, time, feasibility, and communications so that the project can be completed within the approved budget.
CASE STUDY: IMPLEMENTATION OF A NEW TELEPHONE SYSTEM A budget of $30,000 was established for the implementation of a digital telephone system in 2015. Thorough research was conducted into the telephone market vendors to ascertain cost, quality, and companies for the installation. To achieve or contain costs, time was an important factor. Upon selection of Retone telephone system and Bell Tech Company (names have been changed for the two companies) for installation and the implementation, the timeline had to be worked out. The longer the timeline, the higher the cost and to ensure that the cost was contained, I personally led the implementation, worked with Bell Tech to streamline the timeline from four to two weeks which included the training time. I selected three team leaders to be trained to act as a buffer between Bell Tech and staff. This strategy helped to contain the cost within budget and enabled a successful implementation within the allotted time frame. Cost is one of the key performance indicators for projects. The factors involved in controlling costs are processes centered around planning, estimating, budgeting, financing, funding and managing costs so that the project can be completed within the approved budget. Regarding the above-stated case study, my timely intervention and personal input drastically reduced the timeline and allowed for cost effectiveness.
report problems as soon as they are identified. Effective techniques exist to help you in this matter. My project management skills came to play when I needed to train my team members to act as a buffer between the staff of Bell Tech and the company management which eventually contributed to containing the cost within the budget as well as enhancing the successful implementation of Retone telephone system within the timeline.
Cost control includes monitoring cost, task completion, and time. If the total cost of a project at a given time is over the cost baseline, project management actions range from ensuring that only tasks within the scope of the work are being performed and alerting stakeholders of potential cost overruns. As a project manager, it is important, professionally, and ethically to identify and
Cost budgeting means establishing and adhering to a budget that is based on cost estimates. The two components of such estimates are the scope of the work and the cost of each completed task. The project plan details the requirements for the project, which you must translate into activities. A typical activity requires labor, materials, and equipment. Once you have defined the
project scope in terms of activities and divided the activity into its cost components, you can calculate cost estimates using costs from historical sources, bids, industry norms and other projects. Costs can be controlled by applying techniques using the budget, schedule, baseline and earned value. Financing a project can be done in a variety of ways. Finance can be obtained through a bank loan, liquidation of assets to obtain cash or via an extension of credits from financial institutions. Time management is another essential tool in project management. Time is money. Keeping the cost in constant control, for the above project, helped to effectively manage the triple constraints.
PM magazine | SPRING 2017
M ANAGING A SSET S WITHIN COST CONSTRAINTS
Q1. As an asset manager, how do you Sandeep Sawant balance the trio of cost, Asset Manager, Maryland risk, and performance? Transit Administration It is important to have a goal and vision to manage your asset in the initiation stage. One of the major key performance indicators that we focus on --in terms of goals and vision-- is to ensure that any asset we manage provides safe and reliable service in order to provide transportation to our clients. The performance of an asset is very important: we always ensure before operating an asset that it operates with zero risks. The order in which we balance the trios of asset management begins with the risk, the performance and then the cost.
We perform regular preventive maintenance (PM) work on all our assets to check for all the possible risks that can be associated with an asset to ensure the performance quality so that the asset satisfies all safety standards and industrially accepted standards. This involves using the two types of PM which are: 1. The mileage-based PM (i.e. 6,000 miles PM, 12,000 miles PM, 30,000 miles PM, and 60,000 miles PM) such as oil change and filter change. 2. The time-based PM (i.e. six (6) months, one (1) year, two (2) years etc.) such as an HVAC system. We ensure that the cost is being managed correctly and then we track our PM and performance with the aid of an IBM software named Maximo 7.5. Based on this analysis, if the asset costs too much to maintain, we retire it.
Basically, the preventive maintenance work is a tool we use to balance the trio of cost, risk, and performance. If the asset does not pass the risk, performance and the cost implication test, we do not operate that asset. Q2. What type of assets have you managed? Assets range from bus, heavy rails, equipment related to rails, small cars, signaling systems and any assets generally related to transit. This broad range of assets has given us the experience to successfully manage and maintain assets costeffectively. Q3. What were the obstacles that hindered you from managing those assets effectively? The asset management concept itself is relatively new to the industry. Sometimes it is difficult to explain to our prospective clients that it is important to manage your asset correctly so that you can manage the budget. Generally, people try to manage their budget and then tweak the asset performance accordingly. This should not be the case, as you should always try to manage your asset and then you manage the budget (cost) based on your management of the asset. Additionally, managing assets effectively also includes the availability of resources and budget. Q4. How do you maximize asset life through cost management in managing assets? This is achieved by correctly doing preventive maintenance and following a preventive maintenance plan. This approach helps to get the maximum out of that asset and prolongs the life of the asset at a considerably less lifetime cost. Ignoring the importance of adopting a preventive maintenance plan will have highcost implications throughout the lifecycle of managing that particular asset. For example, ignoring the 6,000 mileage-based PM of changing the oil and filter, would result in clogging the engine and possible transmission failure. The cost of replacing the engine might cost you $60,000 and the transmission $30,000. That is a total of $90,000 expenditure if you do not actively perform PM at the 6,000 miles mark. Every asset comes with a manufacturerâ€™s manual, and the manufacturers usually recommend a certain type of frequency of maintenance. In my organization, we go by this frequency of maintenance required by the manufacturer and we also include a carefully mapped out preventive maintenance plan and safety plan in order to give first class service to our clients. For example, for every 6,000 miles for a bus, we
are expected to change the oil filter, fuel filter by the manufacturer, but we also go further to check brakes, the tire pressure, body damage, and other safety related concerns. In the performance stage of the asset, we get the most out of our assets and maximize asset life through cost management by doing routine aditional checks and inspections on the asset.
ÂŠ George Vasquez-Pujalt 2013
Asset management is a systematic process of deploying, operating, maintaining, upgrading, and disposing of assets cost-effectively.
Q5. What cost risks have you encountered as an asset manager? Most of the time you know that you are supposed to retire a particular asset but sometimes you have to keep it running even though it is expensive to maintain. The maintenance cost goes higher if you keep trying to replace the old part or an affected part, because typically it does not take long before you need to replace that part again due to the pressure for that asset to be in service, hence the high cost. It would be a lot cheaper, in the long run, to get a new asset than trying to fix a worn out asset which drives down the cost of maintenance. Q6. What are the best asset management practices to adopt based on your experience? The most important thing is ensuring that you always monitor and control your fixed assets correctly. You have got to have a serial number, proper description, proper in-service date, as well as perform a regular conditional assessment of that particular asset. Additionally, as the project manager the documentation of lessons learned during the process of managing the asset is crucial. In the end, asset management involves evaluating and managing the relationships between costs, risks, and performance over the assetâ€™s lifecycle to provide safe, cost-effective, and reliable service to customers.
SPRING 2017 | PM magazine
Cost Management A parent’s humorous overview of sending a kid to college I like to think that I am fairly competent, and educated. I teach project management classes, and I am a wizened project management professional running multi-million dollar projects for my organization. So figuring out the costs of education for my daughter –soon to be graduating senior and aspiring artist—should not be too difficult, right? This is absolutely not the case! In the maze Monica N. Kay, D.B.A., PMP Professor, Morgan State of higher education, determining the college University choice, parental financial contribution, and the mix of scholarships (both internal and external) versus student loans, leaves most parents confused, overwhelmed and ready to have their kid fill out employment applications at the nearest Dunkin Donuts to avoid the mire of helping their student apply and pay for college. After dealing with the process of submitting applications to public and private art schools with my daughter, filling out the Federal Application for Student Aid Financial Form (FAFSA) and numerous runs to the local convenience store for lotto tickets (that is just how much art schools costs nowadays), I decided to take a PMI® cost management approach using four distinct areas to help us decide financially which schools would yield the best benefit.
choice of a double major hit up against our funding limit reconciliation as there is a limit on the amount of funds from her parents that will be expended on her “college education” project.
COST CONTROL This is where costs are monitored throughout the life of a project, and to provide status as it relates to as the project manager in charge of the “college education” project. Namely, her parents. This is taking in data such as scholarships earned, G.P.A achieved in order to continue her scholarships received from the schools, as well as reviewing external factors such as the incremental increases in tuition that will occur over the course of four years. This also includes monitoring for reserves as we know that additional expenditures may occur while she is on campus necessitating the emergency call for additional cash. So what does this mean for the parent who uses costs as a basis for educational decision making? It means taking all of the internal and external factors and making decisions such as how much will be given by the school, whether the student will stay in-state or out of state, as well as public versus private study. In the end, the project costs of sending a kid to college matters inasmuch as parents are willing to pay to get a teenager out of their house and successfully employed.
COST PLANNING Which include the policies, the procedures and the documentation involved for planning, managing and controlling costs. For us, our policies and procedures included developing the filing system (expandable folders) and development of the spreadsheet to capture costs, establishing the procedures (Sunday nights worked best for us in completing applications and scholarships as well as creating her portfolio) and determining the documentation (transcripts, art pieces, numerous essays and documents from the school). It also begged the question of why did we buy that extra coffee? That $3.85 could have gone to a college fund!
The process of developing an approximation of the monetary resources needed to complete project activities. Step two included using expert judgment and analogous estimating in terms of how we estimated the cost of attendance (COA) from schools. Luckily for us, this is readily found on most schools websites in really big print as if it eases the pain of the school costs by seeing it easily.
DETERMINING THE BUDGET Easily explained, this includes aggregating the cost of work packages and activities. For my daughter this included determining her major. Will it be animation or illustration? Or is she trying to achieve both? The
ILLUSTRATION BY SYDNEY N. KAY
PM magazine | SPRING 2017
Student Team Biographies
George Micheni MSPM c/o 2017 George is a graduate assistant at Morgan State University (MSU), Senator with the Graduate School of Business governing body and a project consultant for Oysters Inc., a company established jointly with the State of Maryland to provide the largest Oyster hatchery. He is a Bachelor of Commerce (Finance) Graduate from Kenyatta University, Nairobi Kenya (2014) and he later worked in a World Bank project team as an external auditor which led him to MSU to study project management. During his free time, George volunteers with Prostatecancer.org, a non-profit company, to provide support materials and awareness in Baltimore. After graduation, George would like to broaden his expertise in planning and managing projects, cost control and financial analysis. In the future, he plans to open up a consulting firm to help private companies with their project portfolios, resource management, return on investments, accountability and maintaining a successful organizational track record.
Enid Choloh-Dukule MSPM c/o 2017 Enid migrated to the United States from Liberia, West Africa in 1996 to further her education and improve her familyâ€™s situation. She graduated from Baltimore City Community College with an A.A. degree in Business Administration in 2008. She then graduated from Coppin State University with a B.S. degree in Management Science and Economics in 2014, and will be graduating from Morgan State University with an M.S. degree in Project Management. Enid is currently employed at Parexel International. Having worked in several positions there, she has gained expertise in a wide variety of areas. Her future plans include furthering her career as a project manager in the pharmaceutical field and will be taking the Project Management Professional exam in the summer of 2017. She eventually intends to take her expertise in economics, business, and the pharmaceutical industry back to her homeland of West Africa, and help better the lives of her struggling native citizens.
Seun Abiona MSPM c/o 2017 Seun is currently enrolled in the Masters of Science in Project Management (MSPM) program at Morgan State University and will graduate in May 2017. He graduated with a B.S. in Estate Management from the Polytechnic Ibadan Nigeria and has had various professional experiences in the field of real estate management and project coordinating. Seun has worked with the State of Texas corrections department and other professional organizations in the United States. He currently works for a private organization as an IT Auditor. As a student, he has also participated in project management teams for FIFA World cup stadium construction project in Qatar and this issue of PM Magazine. Upon graduation from the Master of Science in Project Management, he plans to attain his Project management professional certification (PMP) and work for an international IT organization as a project manager.
Oghenekevwe Oberiko MSPM c/o 2017 Oghenekevwe is an administrative specialist at the Maryland Transit Administration (MTA) and is enrolled in the Masters of Science in Project Management Program (MSPM) at Morgan State University (MSU). He graduated from the University of Lagos (UNILAG) with a B.S. degree in architecture 2010 and a Masters in environmental design in 2012. He is a leader of the Divine Youths Follow (DY) in Nigeria, with a vision to help youth rediscover, retool and re-engineer themselves towards attaining a purpose driven life. As a graduate of the program, he plans to utilize his skill set and knowledge to strengthen the architectural and construction industries in Africa in terms of on-time performances, scheduling, and cost management among others. He believes that his knowledge in architecture, environmental design, and project management will allow him to bring innovative ideas into these sectors. He plans to attain the Project Management Professional (PMP) certification before the end of the year.
Oluwatobi Aderonmu MSPM c/o 2017 Oluwatobi Aderonmu is originally from Nigeria, West Africa. He graduated with a Bachelorâ€™s degree in Economics from Ajayi Crowther University Oyo, Oyo-state Nigeria in 2013. He is currently an intern with Maryland Department of Transportation (MDOT) where he conducts detailed analyses of existing processes and designs the scope for the Standard Operating Procedures framework. As a graduate of Masters of Science in Project Management (MSPM) Program, he plans to establish a consulting firm that deals with developing project scope for complex client situations, developing marketing strategy campaigns for organizations and helping companies bring in their mission critical projects on time and within budget. He plans to take the Project Management Profession (PMP) exam during the summer of 2017.
Fred Sosiah MSPM c/o 2017 Fred currently works for Baltimore City Community College, on the Enterprise Resource Planning (ERP) project as a project coordinator. He previously worked as a finance assistant for the World Bank Group on a Multi Donor Trust Fund (MDTF) project in Kenya and South Sudan. He graduated from Africa Nazarene University Nairobi, Kenya, in 2012 with a Bachelor of Commerce (Accounting) degree. He plans to take the PMP certification in summer 2017, which he believes will complement his Masterâ€™s Degree in Project Management. He desires to utilize his education and project experience in a consulting role, where he will give back to the community by working on diverse projects both locally and internationally.
SPRING 2017 | PM magazine
Our Program and Links to PMI Morgan State Universityâ€™s graduate programs in Project Management are offered by the department of Information Science and Systems in the Earl G. Graves School of Business and Management. The MSPM program is suitable for professionals that want to develop their knowledge and skills to move up to senior planning, consulting, and project management positions. Applicants are required to have a bachelorâ€™s degree from an accredited university, at least two years professional level work experience, and meet the MSU Graduate School admission requirements. The program requires 30 credits and a comprehensive examination. Program participants complete courses as a cohort. The interdisciplinary feature of the MSPM allows students to take three supporting courses that form the focus areas in a wide range of fields.
Engineering; Industrial Engineering; Information Technology; Science; and Transportation. The Project Management Institute (PMI) offers membership to full time students in degree-granting programs at a college or university that has U.S. accreditation or the global equivalent. A PMI student membership also offers discounts on certifications such as the Certified Associate in Project Management (CAPM) and the Project Management Professional (PMP). Additionally, PMI in collaboration with MSU has held CAPM and PMP exam prep workshops on the campus of Morgan State and continues to offer the workshops every spring. Please visit us at www.morgan.edu, then proceed to Academic Programs.
Samples of courses offered include: n n n n n
Foundations in Project, Program, and Portfolio Management Project Integration and Scope Management Building and Leading Successful Project Teams Project Time and Cost Management Managing Project Procurement, Quality, and Risk
Students choose three courses from a list of over 40 courses to integrate project management skills in a specific subject area from Architecture; The Arts; Business; City and Regional Planning; Civil
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LAUNCHING IN FALL 2017: 100% ONLINE GRADUATE PROGRAMS IN PROJECT MANAGEMENT
Project Management Professional Training Series The Baltimore Chapter provides its members the opportunity to take Prep Courses in order to qualify for the following PMI Credential Exams: • Project Management Professional • Certified Associate of Project Management Project Management Professional • Risk Management Professional Training Series • ITIL Foundation Visit: www.pmibaltimore.org The Baltimore Chapter provides its members the opportunity to take Prep Courses in order to The Baltimore Chapter provides opportunities for corporations, academia, qualify for the following PM I Credential Exams:
non-profits, and government organizations to promote their product, services, or organizational image throughProfessional its sponsorship programs. The Baltimore Chapter is offering the Project Management following promotional and networking opportunities: Certified Associate of Project Management • P remier Sponsorship Risk Management Professional Program – Several advertising & promotional opportunities bundled together Visit www.pmbaltimore.org • S ite Meeting Sponsorship – Available throughout the year at many area PMI The Baltimore Chapter provides various opportunities for corporations, academia, non-profit BC sitesorganizations to promote their product, services or organizational image and government through programs. At –this time, corporations and organizations can sign up each • Pits MIsponsorship BC Annual Meeting Well attended “State of the Chapter” held for one or more of the following promotional and networking opportunities we offer: November • G olf Tournament for the Community Fund – Play golf and network with area PM’s PMI is the world's largest not-for-profit membership association for the project management profession. Our professional resources research empower more than 700,000 members, credential holdersBC and volunteers in nearly every • P and roject-of-the-Year Award Ceremony – Join PMI in recognizing andcountry supporting in the world to enhance their careers, improve their organizations' success and further mature the profession. PMI's the best managed projects worldwide advocacy for project management is reinforced by our globally recognized standards and certification programs, • P academic rofessional Development Event (PDE) – Held annually extensive and market research programs, chapters and communities of practice, and professional development opportunities. • Y oung PM of the Year – Recognize & support our young PMs Visit our PMI atup www.PMI.org,www.facebook.com/PMInstitute and on Twitter @PMInstitute • M entor Program – Meet & greet and coming PMs PMI is the world’s largest not-for-profit membership association for the project management profession. Our professional resources and research empower more than 700,000 members, credential holders, and volunteers in nearly every country in the world to enhance their careers, improve their organizations’ success, and further mature the profession. PMI’s worldwide advocacy for project management is reinforced by our globally recognized standards and certification programs, extensive academic and market research programs, chapter and communities of practice, and professional development opportunities.
Visit PMI at www.PMI.org, www.facebook.com/PMInstitute, PMI Baltimore Chapter LinkedIn Group, and on Twitter @PMIBaltimore
Published on May 12, 2017
PM Magazine is a magazine dedicated to Advancement of the Project Management professionals and is produced by the Master of Science Project...