,

Avoiding overruns and controlling costs

Business Calendar

One of the first of many questions to ask when preparing for a large multi-year project is, “How many hours represent a person year (1920, 1888, 1848, etc)?” Then ask how those hours will be time phased, linear or adjustable, across the contract year(s). It is amazing how easily these two questions get overlooked in the initial phases of the project. The answer to these questions will establish the project revenue profile, performance measurement baseline curves, and contract ceiling.

Person Year Breakdown

When determining a person year it is a good idea to get the right people involved to make the decision. Make sure to involve the executive managers, the project manager, human resources, contracts, pricing, and project controls. Using 1920 vs. 1848 doesn’t seem like that much of a disparity unless you are PM trying to explain to the executive managers why profit before tax (PBT) is less than forecasted. Or explaining to the customer during a monthly status report why actuals are exceeding the plan.

Let’s think about this and break the standard calendar down for US based project on a government site.

Let’s consider a simplistic scenario where a proposal was submitted with an 1848 person year. No problem so far except upon winning the contract you discover that a majority of the staff are at mid to junior levels. What is going to happen to the project manager at the first quarterly review? That’s right! He/she will get three months into the project and realize that actuals are exceeding plan by ~ 3-4% because the staff are working more hours than baselined. Now exacerbate this situation with the current tendency of the government to use fixed priced, fixed fee, or fixed ceiling contracts.

Now the same situation, except let’s focus on the time phasing of the 1848 hours. If the 1848 person year was spread linearly there would be 154 hours per month (1848 hours/12months). No problem except until the fourth quarter. This is when most people use fringe days and escape for the holidays. If the project manager plugged 154 hours a month into the forecast, he/she will experience unfavorable quarterly revenue and profit goals because people are not generating revenue.

Summary

The main take away for the project managers are make sure to get involved during the proposal phase. Ask the right questions before the proposal is submitted and the contract is signed. Understanding a person year is just one of many variables to consider when avoiding overruns and controlling costs.

Leave a Comment

2 Comments

Leave a Reply

Profile Photo Josh Nankivel

Great points Travis.

So if you are used to starting with duration as your basis, this is a scenario you could run into if you aren’t careful.

Your team knows the 10 of them can reach the next milestone in 6 months. You start with that FTE and duration as your basis. But not before a policy change has shifted the year’s hours basis from 1920 to 1848…

Now what translated into 9,600 hours of effort (which is still 9,600 hours of effort, by the way) has to be done in 9240 hours, or else you’ll be seeing unfavorable cost variances to explain very soon.

hrs/year FTE Months Planned Hrs
1920 10 6 9600
1848 10 6 9240
Reply
Profile Photo Travis K. Anderson

The issue I have seen is when a supportt services proposal is bid the 1848 hrs combined with a low wrap rate typically means a good chance of winning. This assumes the technical and management aspects are equal. Once the contract is awarded the proposal manager is rewarded for the win, but the poor PM is handed the gernade with the pin pulled as everybody runs the other direction.

It important to know if a project is sunk before it begins.

Reply