“Project management can be defined as a way of developing structure in a complex project, where the independent variables of time, cost, resources and human behavior come together.” Rory Burke
Organizations of all types are increasingly finding valid reasons to treat and manage specific activities that require a budget to allocate resources from the start to the completion as a project. Therefore, it is a necessity for project managers to have a good understanding of how to plan the budget as a financial blueprint to support the project to achieve its goals and objectives.
However, Bernadette Felix, Director of FHE, points out “Almost every day on a global level the media and corruption watch dogs are exposing failed projects that has a significant monetary loss for organizations, the economy, taxpayers and employees which very often results in unemployment.” According to Cohen (2000) every company and every project has a cash cycle. There are four phases of the cash cycle:
a) financing is used to acquire the cash it needs to begin,
b) investing uses the cash to grow,
c) operating finances the operations of the business or project and
d) returning returns the cash it owes to its creditors and owners
Perhaps, if the cash cycle model is considered seriously in a project cycle, cost management can be effectively implemented to prevent financial waste or loss.
The cost of failed projects
Research shows that exposure and strong dialogue on project cost and loss has become a subject of project focus:
a) In 2016 the Management Institute (PMI) Pulse of the Profession reported that interviews were conducted with 2500 project managers, directors, and other executives that held the authority to assess both the cost and the success of various projects. The findings showed that for every $1 billion spent on projects in the U.S., there was an approximate loss of $122 million. This finding means that on average 12% of the budget for projects, was wasted due to poor management, counter-productive behaviours, and bad decision-making.
b) The PMI’s Pulse of the Profession: 9th Global Project Management Survey 2017 showed that 14% of the surveyed IT projects were deemed as failures. Only 57% of the projects finished within their initial budgets, with the others exceeding the target they had set for themselves.
c) According to Paul Fitzsimons (2016) cost overruns and benefit shortfalls during project implementation occurs for the following reasons:
• the intricacy of mega-projects; the scope can and does change over time, and
• susceptibility to misinformation about costs, benefits, and risks during project development and decision-making.
Here are some examples of failed projects around the world to give the readers a realistic idea of the enormous, wasted cost involved:
a) Money 'wasted' on water projects in Africa: International donor agencies have made positive strides to improve access to clean water in many rural areas of sub-Saharan Africa. However, in 2009 the Guardian.com reported that almost $360 million USD had been spent on building boreholes and wells, only to find that 50, 000 water supply points quickly became non-functional and, in some cases, irreparable.
b) St Helena Airport costing £285 million of UK moneydelayed over safety concerns: An airport built on a remote South Atlantic island by the British government – at the cost £285 million of public money – cannot be used because planes landing there are blown off course (The Guardian.com: 2016).
c) Nelson Mandela Bay buses worth R100 million gather dust in ‘failed project’: In 2009, 60 buses were purchased at a cost of R100 million by the Nelson Mandela Bay as part of its integrated transport system used during the 2010 Soccer World Cup. However, as soon as the tournament was over, the busses remained idle and parked off outside a fresh produce market in Motherwell outside Port Elizabeth. This project was plagued by problems and allegations of corruption (News24.com: 2015).
d) Brand new $11 million overpass torn down in Montreal: An $11 million overpass in Montreal that was built just a year before was torn down because it turned out that the structure did not fit in with plans for the new Champlain Bridge (CTV News: 2016).
Why is Project Cost Management Important?
All professional project managers should know that Project Cost Management is one of the nine areas of knowledge in the project management framework. The evolution of project management requires managers to have the skills and applied competency to budget, track, and report costs and profitability to effectively manage its resources and to achieve the project’s objectives and goals.
Bernadette Felix explains, “To implement effective cost management practices, project management tools and techniques are required to correctly determine the cost of the project, to know the exact amount of money that the project needs and the cost baseline that influences the financial needs of the project.”
By implementing effective cost management practices, project managers can (Hexagon EcoSys: 2021):
a) set clear expectations with stakeholders,
b) control scope creep due to transparencies established with the customer,
c) track progress and respond with corrective action at a quick pace,
d) maintain expected margin, increase ROI, and avoid losing money on the project, and
e) generate data to benchmark for future projects and track long-term cost trends.
Effective project cost management is the art of managing time, cost, and quality to achieve the project objectives and goals without wasting money
“The project manager is expected to integrate all aspects of the project, ensure that the proper knowledge and resources are available when and where needed, and above all, ensure that the expected results are produced in a timely, costeffective manner.” Meredith and Mantel
References
1. Cohen, D. J. (2000) Why finance matters for project managers. Paper presented at Project Management Institute Annual Seminars & Symposium, Houston, TX. Newtown Square, PA: Project Management Institute
2. PMI’s Pulse of the Profession: 9th Global Project Management Survey (2017) Success Rates Rise – Transforming the high cost of low performance (online) [Accessed on 15 February 2021]
3. PMI’s Pulse of the Profession: Pulse of the Profession 2016 (2016) The High Cost of Low Performance (online)
[Accessed on 17 February 2021]
4. Hexagon EcoSys (2021) Project Cost Management: Steps, Basics and Benefits (online)
[Accessed 13 February 2021]
5. Biz Community: Fitzsimons, P. (2016) Why Mega-Projects Fail (online)
[Accessed 20 February 2021]
6. The Guardian. Com (2009) Money 'wasted' on water projects in Africa (online)
[Accessed 20 February 2021]
7. The Guardian. Com (2016) St Helena airport costing £285m of UK money is delayed over safety concerns (online)
[Accessed 20 February 2021]
8. News 24. Com (2015) Nelson Mandela Bay buses worth R100m gather dust in ‘failed project’ (online)
[Accessed 20 February 2021]
9.CTV News (2016) Brand new $11-million overpass torn down in Montreal (online)
[Accessed 20 February 2021]
