Time and Cost Are Not Measures of Success, So Why Are They Still Important?
Somewhere near the beginning of a project or at the business case stage the delivery time and costs are estimated on the best information available at the time. The only thing you can know for certain in relation to these estimates is that they are wrong. Some estimates will be too high, some too low. It is hoped the ups and downs will balance each other out to enable the project to be delivered ‘on time and on budget’.
Despite their inherent unreliability, most projects are measured as a success or not by whether they are delivered ‘on time and on budget’. This is wholly inappropriate as time and cost are not measures of success.
Managing time and cost is important; they have a critical role, but success measurement is not one of them.
The Role of Cost Management and Control
The net value of a project investment can be destroyed by cost overruns. Therefore, project delivery costs need tenacious management to avoid over spending. Every dollar spent over the optimum cost reduces the net value of the project investment.
However, cost management is not an end in itself—its role is as a net value determinant.
Cost management cannot create value but poor cost management can destroy it.
Decisions made in relation to the project’s costs need to be made with a business value perspective. “How will this (cost) decision impact the business value to be realized?”
A minor cost increase to deliver a major increase in business value can be welcome. A minor cost saving that results in a major loss of value should be resisted.
Cost control is therefore vital. But ‘coming in on budget’ is not a measure of success, it is a measure of delivery and cost management efficiency. You don’t commission projects to bring something in ‘on budget’ but to improve the business.
The goal with cost management is to maximize the net value. So spending, say 40% less while only reducing the available business value by, say, less than 10% is a high-value decision. Projects that return unspent funds should be applauded rather than seen as ‘unreliable estimators’.
However, success is not whether you spent all of the funds available and no more – ie being ‘on budget’ – but whether you maximized the net business value delivered.
Cost is a determinant of the final net business value, not a measure of success.
The Role of Time Management and Control
Time extensions can cause cost increases (due to a project’s ongoing cash-burn rate) but the real ‘cost’ is in the benefits' value lost forever .
A one-month delivery delay loses one month’s worth of ongoing benefits.
This time/value impact can be illustrated by the following example:
If promised to pay you a benefit of $100 a month from March onwards, by the end of the year you'll have received $900. However, if my project is delayed and I start paying you the benefit from June onwards, by the end of the year you'll have received $600. The other $300 not paid has been lost forever. This $300 is the cost of the delay.
To maximize the total business value projects should be delivered within the optimum timeframe.
Time management and control is therefore still critical but again as a value determinant. Coming in ‘on time’ is a measure of delivery time management efficiency, not project success.
It is not a matter of coming in ‘on time’, it is what is delivered that is critical.
Currently ‘agile’ is being used to increase the speed of delivery. However, speed of delivery achieved at the expense of quality has minimal value. Only outputs to the quality required will deliver the business benefits and value. A fast delivery of something that is compromised can save project time but reduce the business value.
Time is a determinant of the total value available to be realized, not a measure of success.
It is more worthwhile to focus on the true measures of project success.