Project Management is Free!

If I say “Project Management is Free” every CFO is saying I am either crazy or lying. But I am here to prove them wrong.

Let’s look at a fictitious company; we’ll call them Larger than Life Industries (LTTI). PM Miracle International (PMMI) has had a one year engagement for consulting and training at LTTI. The CFO at LTTI, Joe Carter has called a meeting with the Vice President of Client Services for PMMI, Thurman Munson.

Joe welcomes Thurrman into his office. He gets right to the point; “Thurman,” he says, LTTI is not renewing our contract for PMMI’s services. LTTI needs to cut costs and training is one of the first things taking a hit. Thurman looks a little confused. He says; “Our services are free, actually our services made you money”.

Joe does not believe that Thurman would claim something as outrageous as this. He knows that, of all the people at LTTI, claims like this should not be made to him. He knows where every nickel is going. Joe says, “We have spent over two million dollars with your company in the last 12 months”. Carter pulls out the invoices identifying:

• $1,275,000.00 for training 300 employees
• $125,000.00 for materials
• $150,000.00 for facilities for training
• $300,000.00 for travel and expenses
• $350,000.00 for consulting services
  Total = $2,200,000.00

Thurman pulls out a report and says, “You should also include lost productivity of $750,000.00, and don’t forget their wages as well for training and meetings. That’s another $350,000.00; adding $1,100,000.00 for a total of 3.3 million dollars.

Joe looks at Thurman with a dumbfounded expression. He said, “Where are you going with this?” Thurman smiles and says, “please have a seat and let me explain.”

Thurman gave the following explanation for being able to state that Project Management is Free.

When considering the costs of PM, all costs should be included. This concept that
Project Management is Free has it’s foundations in the book; Quality is Free by Phillip Crosby. There are two points that must be made; what are the costs if conformance and what are the costs of non-conformance?

The costs of conformance include all costs incurred to perform an effort. LTTI spent the following with PMMI:

• $1,275,000.00 for training 300 employees
• $125,000.00 for materials
• $150,000.00 for facilities for training
• $300,000.00 for travel and expenses
• $350,000.00 for consulting services
• $750,000.00 for lost productivity
• $350,000.00 for salaries of participants
  Total = $3.3 Million

The cost of non-conformance is where this concept is brought home. LTTI needs to look at the changes in performance to determine what the true ROI is for their investment in project management. Here are the improvements:

• Reduced rework – $2.7 Million
• Reduced changes – $1.3 Million
• Schedule delays reduced from 30% late to 10% late = $7.8 Million
• Cost overruns reduced from 40% to 15 % over = $8.5 Million
• 30% increase in contracts awarded = $12 Million
• 300% increase in customer retention = $9 Million
• 20% reduction in employee turnover = $3.9 Million
  Total = $26.2 Million

Thurman, seeing the wide eyed look on Joe’s face, proudly summarized by pointing out that LTTI netted $22.9 Million. “With this kind of revenue generation you can see how I can claim that Project Management is Free!” Joe smiled and said to Thurman, “double the training for next year!”

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Wayne Brantley, MS Ed, PMP, CRP, CPLP is the Senior Director of Professional Education for the University Alliance (www.universityalliance.com). Wayne has taught and consulted project management, quality management, leadership, curriculum development, Internet course development, and return on investment around the world to Fortune 500 companies. He is certified Project Management Professional (PMP) by the Project Management Institute, a Certified Professional in Learning and Performance (CPLP) by the American Society of Training and Development, and a Certified Return on Investment Professional (CRP) by the ROI Institute. Wayne is currently an adjunct faculty member at Villanova University.