CostCuttingLately I’ve been dealing with a disturbing number of situations where companies are disinvesting in project management as part of their cost-cutting exercises. I know that in a shrinking economy or in a firm where venture capital is no longer available, cost cuts are inevitable but this trend is a little different. In each of the companies where this has occurred lately, the company is well established, not part of some failed IPO strategy and has a very advanced project management group.

The cuts have come as a result of management identifying the entire project management exercise as an overhead expense. It’s a cross that project managers have to bear that they never seem to fit into the corporate organigram properly. Project management isn’t usually a normal department as they oversee or at least influence work across every other department. The department manager then who controls the project group would have influence over other departments beyond their station. Project management also isn’t usually associated with senior management who usually are identified as making decisions that affect all departments. So, the usual spot for the project group or the Project Management Office is as a dotted lateral line hopefully high up the chart. In theory, they are the reporting arm for senior management and the analysts and allocators of resources to make the organization efficient.

The result? Project management budgets are always a sidebar to other departments. With a tough economy underway, management looks to sidebar budgets to cut costs.

Cutting in the project office however can have the exact opposite effect. In the organizations where I’ve been involved this summer, the one thing unspoken in management circles is the incredible effort and resources that were expended to get the project management department to be as established as it is. We’ve talked many times in these columns about the effort required to implement enterprise project software but that’s the tip of the iceberg if you consider the overall costs of establishing a working project environment. If that environment must meet governmental standards such as the Defense and Aerospace requirements for rigid earned value management (that was the case at two of the companies I visited) then the costs of implementation are that much higher.

How can this happen you ask? It’s not hard. Think about an organization which is suffering the effects of very weak project management. They have projects which run late and run over-budget. They have a mismatch of resources to projects, their clients are unhappy with delays, their suppliers are unhappy with poor ordering requirements, their shareholders are unhappy with project cost overruns. The management decides to implement enterprise-wide project management and to adopt this as a philosophy. A leader must be chosen; someone with strong character and an ability to thrive in tough situations; an evangelist. This person now takes on a significant campaign to marshal the right people, get enough budget, convince everyone in the organization to follow his lead and to implement that toughest of projects: a corporate culture change.

Perhaps it took a couple of years and a lot of money and sweat but now imagine that it was all successful. Once implemented, our intrepid evangelist has moved on to other critical projects, leaving behind a well-oiled machine. If that all happened 10 years ago, the organization can take this environment for granted and that’s exactly what has happened at each of the companies I visited where project management cuts are underway. Senior management is making comments like “Can’t we just do all of this in Excel like we used to?” and “The projects aren’t a problem, why do we spend so much money on managing them?”

It’s easy to forget I suppose. Once the pain of a situation is relieved, it’s something that everyone moves on from. The nature of enterprise project management, once implemented, is that it becomes part of the corporate culture. The effects of good change management, good forward planning, resource capacity planning and variance management is that projects just seem to run themselves as part of everyday life. I guess we can forgive management for not noticing that the costs associated with the maintenance of the project management structure far outweigh the potential cost of having that structure dissolve.

For some people in management they do see these links and are making trade offs of long-term efficiency for short-term gain. It’s a shortsighted view and one in this economy which some organizations are making out of necessity. The impact can be enormous. Losing the efficiency that comes with corporate-wide project management environment can take a company from barely profitable to completely unprofitable in a short period of time. The trade-off that looked so good on a spreadsheet when cutting costs can now generate huge negative impact that affects the company in the worst way possible, eating away day-by-day at areas which everyone assumes run without intervention. The result becomes more and more management by emergency until no one can quite remember how you got here.

If you’re facing this scenario now, whether from a management or project management office, here’s something that you’ve got to factor into your calculations. The cost of buying whatever project management software tool you’re using pales beside the investment you made in implementing it. If you’ve got a complete project environment which is working, it has come as a result of many months or even years of consistent effort. Training, consulting have been applied to the problem, procedures and practices have been established and, hardest of all, a corporate culture change was effected over time. Keeping an enterprise project management environment stable requires consistent effort from those who maintain it and however long your organization has had that must factor into the total cost of ownership or the total investment. Going from a stable enterprise project environment to one which falls into an individual project management free-for-all can happen in a few short months and getting back to where you are will take as long the second time as it did the first.

Cutting the maintenance costs of a stable project environment in the enterprise is certainly an option when you’re trimming the budget, but if you consider all the implications, it can be terribly costly.