Cost Justification for Purchasing Project Software

If you like the Project Tool for either IT Project Management of Construction Project Management, but everything in your company needs to be cost justified, read on. We get this question all the time. Here are two ways we address the question.

The first focuses on only one aspect of a project - managing issues - but is a powerful argument. The second is about improving project efficiency. You may find these approaches can be used within your own organisation.

Problem Avoidance

Try and identify a specific Issue in a recent project you have been involved in, that was not handled as well as it should have been. What was the cost to the project? Cost usually occurs through one, or both of the following

• Additional time spent resolving the project because it was left to fester for longer than it should
• The delay in fixing the problem caused the project to run over schedule

Given the impact in time, how does that relate to money? Now, if that money had been spent on a single license of PA (A$250 which is less than US$200 at the current - Dec 04 - exchange rate), would it be likely the issue would have been addressed sooner, because management of the issue was more visible? Could the saving on this one issue, offset the purchase of PA?

Example of avoiding Project Issues:

A particular supplier delivered components that were damaged. The person responsible for receiving the goods thought he mentioned it to the project manager but cannot be certain. When the project manager needed the components he found they were damaged. He had to make urgent contact with the supplier, and arrange a replacement. This involved a number of calls and meeting with the supplier representative to examine the damage. The project was delayed a day because of the problem.

• Time spent by the PM sorting out the problem – Half a day
• PM daily rate $800
• Cost of PM sorting out the problem - $400
  
• Delay to the completion of the project – One day
• Non capital cost of the project (i.e. what is the cost of the project excluding the cost of purchasing capital items) - $200,000
• Project time from start to finish – 50 days
• Average daily cost of the project - $4,000

In this case, the additional cost of resolving one issue was $400 for the PM to sort out the problem, and $4,000 to fund the project for another day. If the person receiving the delivery had access to an Issue Log where the problem could be entered, it is highly likely the problem would be resolved before it became critical. The Issue would have been entered, an action item created to follow up with the supplier to get a replacement, and the project manager could see if the action was completed on time. The person undertaking the action would see it on their list of things to do and hopefully meet the completion date.

Spending $250 is easily justified if it can save over $4,000 by avoiding one problem. Even if it were to save a PM a quarter of a day, it is almost at break-even.

Improve Project Efficiency

The second way to cost justify the purchase is to look at how much time a project manager spends managing issues, risks, timesheets, budgets, expenditure, status reports etc. For the sake of a number, let us say the PM spends 40% of their time. This is probably quite conservative but will do for the example.

Example of improving Project Efficiency

Taking the previous example. The cost of the project manager for 50 days at $800 per day is $40,000 If the PM spends 40% of their time on administrative issues the cost of those activities is $16,000. If PA were to make the PM 1.6% more efficient it would pay for itself over one project. Yes, that is one point six percent!

We have not even looked at the efficiencies of other project team members or at other projects. We have not looked at the benefit to the enterprise project management office.

Conclusion

No matter if the examples above relate to your company, or if you are larger or smaller, cost justification is not difficult when you look at purchasing Project Administrator.

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