Commercial 101
Learned about the ‘start calc’. A walk through – talk through of a JHG system which identifies areas of risks and opportunities, and the monetary values attached to them. The estimating team feeds data from the project tender to us which is effectively the cost code budget. The forecast then informs the start card. Not used by all sectors within JHG, it is favoured by the operations manager (Dave) who the PM reports to. I liken him to John Moran – been around too long to entertain bullsh1t (pardon my Aussie).
The start card is a logical user friendly tool to turn qualitative opinions into quantitative estimates e.g. ‘we reckon we’re going to make a big margin’ as opposed to ‘how much’ do we reckon we will make? It takes the individual cost codes and churns out a plus or minus value from how we estimate we can do the ‘work’ for against what the estimators thought when we tendered for the project. It’s the profit ‘P’ of the triple bottom line.
In forecasting, I have produced product breakdown structures which have created work breakdown structures. From that I have built up cost breakdown structures (thank-you Steve Payne), and coughed up a dollar value for the ‘cost code’. If this is higher than the estimators envisioned, the code is in the red and vice versa equals in the black. Follow suit for all of the cost codes by the team members and we land up with a total bottom line red or black figure for the project. (It should be mentioned that my team does not use the APMP method and the feedback has been positive).
Too much in the black and JHG senior management will take money off our project to offset projects which are heading south. The trick seems to be to lie through your teeth with a smile on your face. Find places to ‘hide the fat’ e.g. $30k on ‘small tools’. The point being that if you show your cost breakdown to match (or darn near equal) the estimate from the tender estimate, the JHG powers that be will leave you alone. Dave wasn’t born yesterday and he knows the score, he just can’t prove anything – yet.
Another angle is that from a quantitative direct cost risk analysis process (as used on my project), both opportunities and risks are assigned monetary values. Take the value of the cost code and multiply it by the likelihood of an event occurring and voila – you have a red or black number (risk or opportunity). Any ‘fat’ i.e. black you accumulate is then used to offset the red figures from incompetent estimating or ‘Jonahs’. Essentially nothing more than a contingency fund. Like anything, too much of it (visible) is bad as the senior management will transfer it to another suffering project, not enough and the project is costing JHG money.
So this morning taught me to keep your friends close and your enemies closer. Hide the money up your sleeve. Also, bad news is best delivered early. Make your superiors aware of the curve early so that they can fleece other projects to help you, rather than waiting until the project is a hopeless flop and then begging for handouts.
In other news; supersize your kangaroo leather hat with a genuine kangaroo scrotum bottle opener for just $30 AUD extra.
Roo sack – gen.
Holdfast Training Services Trial Blog 
The danger is that each cost code manger will play exactly the same game becasue if they show big black they are used to offset others, if they show red others offset them to reach the project bottom line. At what point do you think the deciet used to try to delight ends? Does anyone actually know what is going on?
Roo Sack – B*ll*cks!
G’Day mate – We have just gone from a predicted £800k profit to a £700k loss in the space of a week by doing exactly what you have described.
The Programme Manager normally submits the quarterly forecast (QF) to head office which allows them to manage the books across the group and skim money off the healthy to keep the weak afloat. By doing some clever book work he has assumed assumed we are out of the woods in some areas and has used the risk pot to cover different losses and maintain the notion of profit. Last week he went on holiday and left my PM to do the QF. He went and was honest…nicht gut!
All works that were still on going maintained their risk pot and overspends were reported accurately. This saw a £1.3m difference in three months!!!
Our PMs gut feeling is that we will probably break even as we have made a couple of design changes that will free up some of the risk money and also save on labour costs but we can’t report that until it happens.
Daz – interesting reality of submitting cost actuals against planned. Was the tender submitted low to win work? So you have Steve’s bus to drive through gaps in the client’s scope or was it well nailed down?
Do you have any provisional sums to allow you some extra leeway should everything not go according to plan?
One of my commercial exposures this week was hearing that the difference in cost of a wagon to remove excavated ground of £80 per load was enough to win or lose a tender. This was for a massive basement excavation.
The key learning point is get more than one quote for a job, material or plant!
I think you gave me the output ( in s/sheet form) of Start Card?
If you stand back from it you can see the following:
a) All the figures are risk ( even in the ‘Best case’ side of the ledger) . There’s no opportunity!
b) Of the worst case $5.8m risk $2.6m of it appears to be linked to whether the tunnelling rate is at 16.8m per day or 12.7m per day- I think I’d know where to spend management effort!
c) It looks like a fairly crude risk cost = worst ( or best case) cost x probability and then sum the lot…..
d) When you get to the programme manage level and you were looking to release costs from projects maybe a root mean square approach would represnt a logical method of assessing whether the project bandits were ‘hiding’ too much cash in the risk assessment?
Daz, just turn the QS’s upside down and give them a shake; you’ll be surprised at the amount of money that floats down. The commercial team on a project ALWAYS try to hide money for a rainy day and keep it form head office. Just ask them how much they have hidden in their cost accruals!