Value Proposition for the Expensive Meeting

I got a lot of feedback from people after they read of my $17,902 meeting post.  I spoke to a few others in my office and they all agreed that the number sounded plausible. As I'm writing my proposal for corrective action, I will deliver it in the form of a value proposition. A value proposition is an analysis and quantified review of the benefits, costs and value that "something" an organization can deliver to customers and other constituent groups within and outside of the organization. It is also a positioning of value, where Value = Benefits / Cost (cost includes risk).  (Thank you Wikipedia for basis of that definition)

But, it's not as simple deliverable.

I use 7 stages of analysis.

• Customer or market - Who am I creating the value proposition for?
• Customer or market value - What do they say they value? (not what I say they value)
• Offering - What is the product or service being proposed?
• Benefits - What are the benefits? (Time, Money, Productivity,...)
• Alternatives - What substitutes or alternatives are there? (like doing nothing)
• Differentiation - How is my proposal different from anything else being offered?
• Proof - What evidence do I have that I can do what you say?

In this case, I'm going to request a formal review of the Communications Plan, modifying it if necessary.  Because this is a status meeting (which is about reporting by one-way communication) not everyone needs to be there in person.  Before I go deep into my analysis, I'm going to bet I can apply the Pareto principle (80-20 rule) to get my point across.

If we do not devalue the benefit of the meeting, we can increase the overall value by decreasing cost.  That decreasing of cost, I would propose, would be asking 32 out of the 40 people to not attend the meeting in person.  By having 8 key linchpins (as defined by Seth Godin) attend this meeting, we could ensure the status is delivered and the message is not lost.

Other indirect communication methods could be used to ensure the information is distributed.  The slide deck and meeting minutes could be posted to a central location, allowing those who didn't attend the meeting in person to know what happened.  Whatever the final outcome, there is a big opportunity for cost savings.

Graphic: Pictofigo

My Caffeine Fueled Rant

People who know me know that I drink a lot of coffee.  I'll drink it hot.  I'll drink it cold.  I'll drink it from the pot, 9 days old.  OK, not 9 days old.  That's just gross.  One of the places I like to drink coffee is a diner.  9 out of 10 times, diner coffee is good.  It's simple, it's basic, and...did I say it was good?  Don't tell me it's organic, fertilized with bat guano from El Salvador.  I really don't care.  The other think I like?  It's usually $1 for endless refills, printed with pride on the menu. This post isn't about cheap coffee.  It's about a pet peeve of mine.  It applies to me ordering drinks at a restaurant.  Here comes the rant.

Today, my family and went out for lunch.  At the restaurant, I plainly saw the prices for everything on the menu but one thing.  Beverages.  Yes, drinks.  Where the hell are the prices for the drinks?  Is this some kind of trick or tactic? Am I to be embarrassed by the fact that I am unwilling to pay $3.00 for a fountain soda or $8 for a beer?  Chances are, if you don't post the prices for your drinks, I'm going to order plain old tap water.  Screw you and your clever lack of information.  It's not my job to ask you how much my drink is going to cost.  You are providing me with a service and that includes prices for the food and drink I'm willing to have with my meal.

If you leave the post at that, I think it stands on it's own.  If you want me to put a project management spin on it, here goes.  If you are a vendor, and you're doing contracted work, don't make your customer ask.  I hate the big reveal.  If you're going to do contracted work, and you fail to inform your customer what the cost is going to be, you should eat it.  Yep, eat the cost.  Why?  Did you promise to throw in a pair of Ginsu knives when you delivered that product?  I'm going to go out on a limb and say no.  Then why would you expect a customer to give you more money for services rendered or product delivered?

I know there are always exceptions.  What if you, as a vendor, don't know how much it's going to cost?  That's fine.  Communicate with your customer.  Treat them like the intelligent beings they are.  They were smart enough to hire you, right?  Then keep them informed and guide them through the options.  Don't sneak that $5 cup of coffee onto the final bill and expect a 20% tip.

Takeaway? Vendors:  Keep your customers informed and don't make them ask. Customers:  Don't let vendors get away with the big reveal.  It will just leave you feeling short-changed.

This Is How You Know When To Kill A Project

According to the Project Management Body of Knowledge (PMB0K), projects are authorized due to internal business needs or external influences.  Project end is reached when the project's objectives have been achieved or when the project is terminated because its objectives will not or cannot be met, or when the need for the project no longer exists. This leads me to today's post.

Instead of finding the newspaper on my porch the other day, I discovered someone delivered a yellow pages book (business directory).  It’s been years since I actually opened a phone book.  There are no longer personal phone numbers in the book, only businesses.  Out of curiosity, I opened it to discover 1 in 4 of the advertisement being nothing more then ads to advertise in the yellow pages!  Did you follow that?  Advertisements to advertise.  I can appreciate the idea of continuing to print the phone book.  Anyone not having access to the Internet still needs to find a directory of businesses.  But after reviewing the quality of the product, it makes me question if it is time this thing went the way of the dinosaur.

All this time I thought the people receiving the phone were the customer.  They are not. It's the advertiser.  The creation of the project (or business) of printing phone books use to actually satisfy a need or provide a public service. People needed to find people and businesses needed a medium to tell potential customers they existed.

We've addressed the original need to start the project.  What about to end it?  With the increased usage of Google and Bing, very few people actually read their phone books to locate businesses.  Until businesses advertising in the phone book believe the cost of advertising in that medium outweighs the benefit it provides, it will continue.  Sounds a little bit like the newspaper industry, doesn't it?  There is a very similar parallel between the newspaper industry and the printed phone book industry.  They both believe or promote the scarcity of information.  That scarcity justifies cost.  To the contrary, we now live with an abundance of information.  That information is freely distributed and reaches a broader audience.

I find it ironic, printed on the phone book, the printer asks us to please recycle our “outdated” phone books.  To satisfy their request, this brand new phone book is going right into the recycling bin.  Though I do believe the end is near for the paper-based phone book, I have a recommendation for them.  Since this printing company has our address to deliver the phone book, why don’t they send us a letter asking if we would like to opt-out of future deliveries?  You tell me, are you more apt to read something you've opted-in to or something sent to you like spam?

Photo courtesy of Getty Images

2 of 100 Items Missing From the PMBoK

Variance At Completion (VAC) is the difference between what the project was originally expected (baselined) to cost, versus what it is now expected to cost. Every month, our vendor is required to report this total on the project as a whole and on key deliverables.  I'm used to seeing the numbers reported and how to calculate them.  I'm not asking for the Cost Performance Index (CPI).  I want to know how far over or under we're going to be compared to the budget.

The formula I memorized for the PMP exam and the same formula I use to calculate VAC today is: Variance At Completion = Budget At Completion - Estimate At Completion (VAC = BAC - EAC)

So, I ask myself, [1] why is there no VAC definition and [2] VAC formula in the PMBoK?

Calculating Variance of Activity the PMP way

When I was studying for the PMP exam, a few years ago, I remember memorizing a group of formulas.  One of those was the "Variance of Activity."  At this point, don't remember if it was even referenced in the exam.  There were no direct questions asking "what is the formula for..."  On my exam, I remember having numerous questions resulting from schedule variance calculations and cost variance calculations.  To my surprise, I went searching for the Variance of Activity formula in the PMBOK (4th Edition) and I can't find it!  So as not to lead people astray when giving PMP study advice, I'm now researching each formula I was once told to memorize.  I'm very surprised PMI didn't save us a lot of trouble and list known formulas in the back of the PMBOK.

The Best Kind Of Contract To Manage Is…(3 of 3)

Unfortunately, there is no ONE best type of contract to manage. The risk the vendor and customer share is determined by the contract type. The best thing you can do is understand the risks and benefits of each. There are three categories of contracts: Fixed-Price, Cost-Reimbursable, and Time and Material (T&M). In this 3 part series, I defined the contracts in each category. Hopefully, it will help you on the PMP exam and out in the real world.

Time and Materials (T&M) is a hybrid type of contractual arrangement that contains aspects of both cost-reimbursable and fixed-price contacts.  They are often used for staff augmentation, acquisition of experts, and any outside support when a precise statement of work cannot be quickly prescribed.

These types of contracts resemble cost-reimbursable contracts in that they can be left open ended and may be subject to a cost increase for the buyer.  The full value of the agreement and the exact quantity of items to be delivered may not be defined by the buyer at the time of the contract award.  Thus, T&M contracts can increase in contract value as if they were cost-reimbursable contracts.  Many organizations require not-to-exceed values and time limits placed in all T&M contracts to prevent unlimited cost growth.  Conversely, T&M contracts can also resemble fixed unit price arrangements when certain parameters are specified in the contract.  Unit labor or materials rates can be preset by the buyer and seller, including seller profit, when both parties agree on the values for specific resource categories, such as senior software engineers at specified rates per hour, or categories of materials at specified rates per unit.

Image courtesy of Marc Lemmons via Flickr

Risks and Benefits of Cost-Reimbursable Contracts

As I mentioned in my previous post, Fixed-Priced Contracts, there is no ONE best type of contract to manage. The risk the vendor and customer share is determined by the contract type. The best thing you can do is understand the risks and benefits of each. There are three categories of contracts: Fixed-Price, Cost-Reimbursable, and Time and Material (T&M). In this second installment of a 3 part series, I will define the contracts in the cost-reimbursable category. It will hopefully help you on the PMP exam and out in the real world.

Cost-reimbursable is a contract category involving payments (cost reimbursements) to the seller for all legitimate actual costs incurred for completed work, pus a fee representing seller profit.  Cost-reimbursable contracts may also include financial incentive clauses whenever the seller exceeds, or falls below, defined objectives such as costs, schedule, or technical performance targets.  Three of the more common types of cost-reimbursable contracts in use are Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF), and Cost Plus Award Fee (CPAF).

A cost-reimbursable contract gives the project flexibility to redirect a seller whenever the scope of work cannot be precisely known and defined at the start and needs to be altered, or when high risks may exist in the effort.  Frankly put, if the buyer doesn't know what they want, this type of contract allows the project to move forward without the risk to the seller.

• Cost Plus Fixed Fee (CPFF) reimburses the seller for all allowable costs for performing the contract work, and they then receive a fixed fee payment calculated as a percentage of the initial estimated project costs. The fee is paid only for competed work and does not change regardless of seller performance. The fee amounts do not change unless the project scope changes.

• Cost Plus Incentive Fee (CPIF) reimburses the seller for all allowable costs for performing the contact work and receives a predetermined incentive fee based upon achieving certain performance objectives as set forth in the contract. In CPIF contracts, if the final costs are less or greater than the original estimate costs, both the buyer and seller share costs from the departures based upon a prenegotiated cost sharing formula, e.g., an 80/20 split over/under target costs based on the actual performance of the seller.

• Cost Plus Award Fee (CPAF) reimburses the seller for all legitimate costs, but the majority of the fee is earned, based on the satisfaction of certain broad subjective performance criteria. This performance criteria is defined and determined by the buyer and and incorporated into the contact. The determination of the fee is based solely on the subjective determination of seller performance by the buyer, and is generally not subject to appeals.

Image Source: Pictofigo

The Best Kind Of Contract To Manage Is...

  Unfortunately, there is no ONE best type of contract to manage.  The risk the vendor and customer share is determined by the contract type.  The best thing you can do is understand the risks and benefits of each.  There are three categories of contracts: Fixed-Price, Cost-Reimbursable, and Time and Material (T&M).  In this 3 part series, I will define the contracts in each category.  Hopefully, it will help you on the PMP exam and out in the real world.

Fixed-Price is a category of contract involving setting a fixed total price for a defined scope of work to be provided.  Fixed-price may also incorporate financial incentives for achieving or exceeding selected project objectives, such as schedule delivery dates, cost and technical performance, or anything that can be quantified and subsequently measured.   Sellers under fixed-price contracts are legally obligated to complete such contracts, with possible financial damages if they do not.  Under the fixed-price arrangement, buyers must precisely specify the products or services being procured.  Changes in scope can be accommodated, but generally at an increase in contact price.

• Firm Fixed Price Contracts (FFP) are the most commonly used contract type.  It is favored by most buying organizations because the price for goods is set at the outset and not subject to change unless the scope of work changes.  Any cost increase due to negative performance is the responsibility of the seller, who is obligated to complete the effort.

• Fixed Price Incentive Fee Contracts (FPIF) are arrangements which give the buyer and seller some flexibility whereby allowing for deviation from performance, with financial incentives tied to achieving agreed to metrics.  Typically such financial incentives are related to cost, schedule, or technical performance of the seller.  Performance targets are established at the outset, and the final contract price is determined after completion of all work, based on the seller's performance. Under FPIF contracts, a price ceiling is set, and all costs above the price ceiling are the responsibility of the seller, who is obligated to complete the work.

• Fixed Price with Economic Price Adjustment Contracts (FP-EPA) are used whenever the seller's performance period spans a considerable period of years, as is desired with many long-term relationships.  FP-EPA is a fixed-price contract, but with a special provision allowing for predefined final adjustments to the contract price due to changed conditions, such as inflation changes, or cost increases (or decreases) for specific commodities.  The EPA clause must relate to some reliable financial index which is used to precisely adjust the final price.   The FP-EPA contract is intended to protect both buyer and seller from external conditions beyond their control. 

Next in my series on Contracts, I'll define Cost-Reimbursable and Time and Material Contracts (T&M)

Image Source: Pictofigo