Why Won’t We Recognize the Value/Cost of Time on Projects?

A few weeks ago, I engaged in an Internet discussion with a very knowledgeable project management thought leader. Make no mistake – this is someone for whom I have a great deal of respect. But when the topic of the cost of time on projects came up, he was dismissive, stating that the value of early completion on most of the projects on which he consults is very small or non-existent.

Let’s think about this: for several years, he has been residing overseas and consulting on projects many thousands of miles from his home. And his consulting fee is definitely not cheap! How important would a project (or program, or portfolio) have to be in order to justify the fees of such a consultant? How large its budget? How great the expected value of the investment?

One of the fundamental aspects of any type of investment is that the length of time to “maturity” is a key variable. The return/benefit that any smart investor will demand is always based in part on how long the wait for that return is likely to be. (There’s an old Bajan saying: “Wait is a heavy load!”) The longer the wait, and the more money that will be “tied up” in that investment, the higher the rate of return that the investor will demand as justification for the project/investment.

One thing of which you may be sure: organizations do not engage expensive overseas consultants to work fulltime on a project with a million dollar budget. Whatever the projects/programs on which this consultant has been working, the budgets are almost certainly over $10 million, and likely over $50 million.

Let’s take conservative numbers: even at just 3% interest, the cost of tying up $10 million is $300,000 per year. That’s $25,000 per month. For a $50 million project, that would be $125,000 per month.

And that does not include:

  1. The opportunity cost of not having that money to invest elsewhere sooner.

  2. The risk of taking longer than planned, a risk that is retired immediately if the project finishes early. Almost everyone would agree that there is a significant cost to finishing most projects late. How much is it worth to eliminate that particular risk?

  3. The “marching army” costs of overhead and level-of-effort activities to support the project. These costs often add up to 10% – 20% of the total cost of a large project. These are costs that continue, week after week, until the project ends. Finishing earlier usually truncates these costs.

  4. The very large reduction in value if the project in question happens to be an enabler project. This is a topic I cover extensively in my book Managing Projects as Investments: Earned Value to Business Value. A delay on an enabler project means a postponement in the value delivery on all the other projects that it is enabling. For example, inkjet printers are often sold at break even or less – their profit comes from the ink cartridges whose sale they enable. Delay printer production and you delay cartridge revenues.

  5. The loss of flexibility that a shorter schedule would allow. Blake Sedore pointed this out to me in conversation: a shorter schedule can sometimes have value not so much by finishing earlier but by allowing the project (or manufacturing process) to start later! This delays committing to a specific strategy and maintains flexibility – perhaps the extra time will allow for better targeting of product scope, or even permit cancelling the project if a sudden change in market conditions makes it no longer a sound investment. (I plan to discuss this interesting idea further in an upcoming blog article.)

(I make no pretense that the above list includes every possible benefit that a shorter schedule would bring — but it’s a start! If you have any additional benefits to a shorter project schedule, please go to this discussion thread in the FORUM and list some of them. perhaps together we can create a useful checklist.)

So why did this very competent consultant not recognize the value of a shortened project duration? It’s simple – he wasn’t looking for it. The PMBOK Guide ® does not discuss the value of project acceleration. The vast majority of project management software provides no field that allows the user to enter a value/cost of time, either acceleration or delay. (And that omission combines with the almost universal failure of software to compute critical path drag to prevent the crucial calculation of the drag cost of critical path activities, a data item that can justify added resources.)

So is it possible, however unlikely, that on the consultant’s specific projects there was no value to the sponsor/customer of an earlier finish? Absolutely! There are indeed projects where there is no advantage to a shorter schedule. There are even projects where finishing earlier has a negative impact on the project investment! (This is particularly true if a project is not on the critical path of the program of which it is a part. For example, early completion of a satellite to be launched on a rocket does nothing to shorten the program if the critical path goes through the preparation of the rocket. The satellite project would have no drag on the program’s critical path, so that finishing it early would only increase its program float, as well as perhaps require additional storage.)

However, such projects are so unusual that it becomes all the more important to clearly identify these exceptions to the rule. It is critical to perform the necessary cost/benefit analysis for earlier completion, taking into account all of the issues I’ve mentioned above, and more. If after all that analysis there really is no advantage (or perhaps a disadvantage) to the sponsor/customer from an earlier completion, that fact should be made known to key team members: “This is one of those rare instances where we won’t be looking to shorten the project!”

But the rule should always be to analyze and quantify the value/cost of time and, if there is a contract involved and value to early delivery, to seek a win-win arrangement: an early completion incentive to the contractor based on a portion of the value to the customer of such a happy result.

Have a great weekend!

Fraternally in project management,

Steve the Bajan

10 thoughts on “Why Won’t We Recognize the Value/Cost of Time on Projects?

  1. The whole problem can’t be reduced to what it means an earlier versus late delivery for the customer. It is also about the project process and creation of the project’s product/deliverable.
    A late project is always compared to a certain date which is either desired or estimated. But what if the estimation is wrong? What if the execution was smooth and right?
    And what happen if the estimation is to short This would create a pressure on the project team resulting in less communication, taking short-cuts, more assumptions and lesser investigation and verification, higher risks, more stress and stress-related illnesses, more conflicts, lesser quality, lesser innovation (since lesser time to be creative), and so on. Seeking to deliver earlier may have a huge negative impact on the product killing its value.

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  2. Quite so, Steve … I’m not astounded that this would seem to be news to project management. My field is in property development, time is money, and every minute saved is an opportunity to turn on the revenue tap earlier and shut off the cost tap.

    PM software, when $ are factored into the activity inputs, can handle the direct cost of preliminaries and some activities costs, whether time is increasing or decreasing, but none so far as I know, have capacity to undertake investment analysis. I’d go so far to say that the vast majority of ‘new age’ PMs have no concept of investment analysis as they are ‘process animals’ and not trained in this area. This is the space where proponents of the feasibility study add value … significantly! A PM who understands the business of the project and can administer a feasibility is worth her/his weight in gold … a wise sage once said “wait is a heavy load”. 😉

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    • Hi, Streetcred. The only PM software package that I know of which attempts to do some of the appropriate financial analysis is Spider Project. (Which also computes critical path drag.)

      Fraternally in project management,

      Steve the Bajan

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    • Hi, Ed. Thanks so much for your generous comment! I see that you live in Australia. But your kindness will cause me to forgive you for the fact that Australia just won the First Test from my West Indies. I will now hope that the Australian XI will show they are as kind as you are by losing the Jamaica Test later this week!

      Fraternally in cricket and project management,

      Steve the Bajan

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  3. Hi, importance of cost of delay has been very well explained.
    I feel quite often, we use this tool to sensitise project stakeholders on importance of timely delivery of their output (finalising sub contractor on time, finalisation of specs by design team) which actually helps in delivering project as per agreed schedule rather than completing the same before time.
    This is a very useful tool amid uncertain statutory environment, too much dependencies on availability of skilled men power etc, for developing countries in order to complete projects on time.

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    • Hi, Naman. Thanks for your comment.

      One thing I perhaps should have focused on in the article a bit more than I did is the importance of schedule reserve. If one wishes simply to finish by a specific date, one still needs a more aggressive working schedule. Having a working schedule that exactly matches the contractual schedule is one way to just about guarantee late delivery. (And of course, critical path drag and drag cost are crucial metrics for compressing that working schedule and generating reserve.)

      Thanks again for your comments, Naman.

      Fraternally in project management,

      Steve the Bajan

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  4. Hi Steve,

    You article resonates strongly with me. It reminds me of the workshop that APM Benefits Management SIG ran with Matt Williams entitled “Value destruction: Why most projects fail to realise the benefits used to make the business case for change [and how to address it] http://bit.ly/valuedestruction

    Matt will be one of a number of speakers and facilitators at our upcoming APM Benefits Summit #apmbmsummit 23 – 25 June See http://bit.ly/sumpresent

    Thanks

    Merv

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    • Hi, Merv. Thanks so much for your email, and thanks for the link to the article and Matt’s slides.

      The whole Benefits Management and realization area is extremely important, and it is good to see the UK so involved in this area. Alas, I believe we in the US are trailing and falling further behind. There are few over here who even understand the differences between a project and a program, in terms not just of definition but how they interact and must be managed in order to provide the intended benefits.

      I am an active member of the LinkedIn Managing Benefits discussion group, having come to it through Steve Jenner’s book and the work of Joseph Sopko. Joe is one of the US’s few program management theorists (and Managing Successful Programs trainer) who recently published this excellent PMI white paper titled “Organizational Project Management: Why Build and Improve?”

      http://www.pmi.org/~/media/PDF/learning/organizational-project-management-build-improve.ashx

      The paper clearly expresses both the benefits management and realization issues as well as the Total Project Control techniques discussed in my two books Managing Projects as Investments and Total Project Control: A Practitioner’s Guide. (In fact, the former title talks about and recommends Steve Jenner’s book.)

      Merv, do you by any chance know Roger Davies? I am currently reading his book, and he apparently is reading mine with the intention of incorporating some of my techniques into his new work. (I think the concept of the value breakdown structure (VBS) would be particularly useful in benefits management.)

      http://en.wikipedia.org/wiki/Value_breakdown_structure

      One other detail that you might find interesting is that there may be a PM Today – UK article in the near future specifically about the TPC metrics critical path drag and drag cost, which are also very pertinent to benefits management.

      I truly wish that I were in the UK to attend the APM Benefits Summit. (And the Ashes Tests, of course!)

      Fraternally in project management,

      Steve the Bajan

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