Through the years I have been involved in many engagements where we look at how project teams manage the cost and schedules of major projects and portfolios of projects. The clients we work with execute projects ranging from tens of million dollars to tens of billion dollars. Through these engagements I have met professionals that are masters of their trade – people that I have deep respect for and feel honored to learn from. I have observed first-hand their industry knowledge, capacity for analysis, and ability to dynamically adopt new ways of working as improved methods and technologies have emerged.
Specifically in the area of project controls, a learning I have taken away is to avoid the natural tendency to focus too much effort on accuracy and precision. Taken out of context, this may sound counterintuitive, but bear with me for a moment.
The words accuracy and precision are commonly used, so let’s revisit what those words actually mean.
Accuracy is defined as the degree to which the result of a measurement, calculation, or specification conforms to the correct value or a standard (Oxford dictionary). As an example within a project controls context, accuracy in Actual Cost would be the degree to which your reported actual costs are truly the actual costs.
Precision is the quality, condition, or fact of being exact and accurate. In other words, it refers to your ability to reproduce the expected accuracy. Again, sticking to the example above, it would mean how consistent you are in measuring and representing your actual costs in a repeatable fashion. Additionally, it commonly also refers to the degree of refinement measurement, calculation, or specification, especially as represented by the number of digits given (approx. one million, vs. 1,002,300 vs. 1,002,300.57).
As I have covered before, a project controls organization exists to improve the predictability of project outcomes. This helps lower organizational risks and enables company leadership to optimize their capital deployment to the right projects in their portfolio. Improving predictability involves both over- and underruns. For instance, if you say your project is going to cost $500 million and be delivered in May 2022, coming in at $50 million less 5 months early isn’t necessarily great. It may have unexpected negative consequences in other parts of your value chain, and you may have unnecessarily restrained capital that could have been more effectively deployed elsewhere.
An interesting paradox is that we naturally seek increasing degrees of accuracy and precision, but focusing too much attention and effort on it doesn’t actually get you closer to that end goal. When it comes to project controls, the key is to focus on refining your processes so that you can be sufficiently accurate and precise to spot and react to the bigger trends.
One of my earliest mentors taught me that budgets, forecasts and actual costs of medium to large projects are measured in millions, not cents. All project reports displaying costs should show the numbers in thousands and millions, not dollars and cents. (Note this is from a project controls perspective, not from an accounting perspective).
Budgets, actuals and forecasts of costs and durations are all estimates, and everyone who has worked on projects know that they will rarely match up with how things actually happen. Misrepresentations, coding limitations, misunderstandings and errors, delays, technical changes and disagreements, and optimism bias are some common factors that influence how well we “hit” the targets. This comes in addition to variability and performance impacts.
Your main purpose is to focus on the bigger trends and look at the pace and direction to forecast where your project is heading. Your time is limited. If you over-emphasize accuracy and precision you will forever be stuck on just reporting the cost and schedule of your project. You must find ways to free up time and resources to analyze and forecast the project. This in turns positions you to truly deliver on the controls aspect of project controls: You are able to spot alarming trends in time to actually do something about them, instead of merely reporting what happened.
Project controls may sometimes feel like “shaving a lion”, but with sensible measures that focuses your team on the bigger trends you can provide meaningful contributions that goes a long way in producing successful project outcomes. Having an integrated Project Management software solution is a key component in enabling this transformation.
If you would like to exchange ideas around project controls, please do not hesitate to reach out to me directly. I am always open for more learning.
Vik Bulletin 