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Viewpoint: Six ways to manage your program costs

Nov. 3, 2013 - 01:51PM   |  
By ROB GRABOW   |   Comments

Bob from Business Development runs down the hallway shouting, “We won, we won!” As everyone in the office celebrates the good news, you, the program manager, have a sinking feeling in your stomach. We won, so now what? Is the allotted funding sufficient to accomplish the program? What unexpected costs lie ahead? Do I need to update my resume? Don’t panic!

In today’s marketplace, shrinking program budgets are making cost management more and more critical. The margin for error is smaller every day. Thus, investing time in planning and monitoring costs over the course of the program will reap untold benefits.

Here are six simple tips that every program manager should follow:

■ Get involved early. Depending on the organization, program managers may or may not be involved in the proposal development process. It is a critical decision-making time for program price formulation. After the proposal is accepted, the budget is set and the program manager must execute the project within its cost constraints. With more and more contract vehicles utilizing a lowest price, technically acceptable award strategy or a similar convention, the pressure is on to submit low-cost proposals. If the program manager is late to the process, his or her ability to execute the project within the budget could be challenging at best.

Program managers possess practical insights on what it takes to accomplish project work and what the true costs are. Be an integral part of the proposal team and share your valuable input during the bidding process. Get involved!

■ Do a realistic bottom-up cost development at the beginning of the program. After the contract win, the real work begins. It is vital to do a complete bottom-up program cost budget up front. Use the cost proposal as a starting point, but draw on your experience to inject reality into the budget.

Be honest. Gather as much information as possible and include cost escalations on materials, equipment and other technology, where appropriate. Identify risk areas that could translate into overruns and develop a management reserve if possible. Even if the cost budget indicates that costs exceed program funding, it is better to know that right away. Early recognition affords more opportunities to develop remedies and bring costs in line. Knowledge is power!

■Monitor ongoing costs closely. While the program is running, monitor costs against the bottom-up budget. If you don’t know where you are, how will you know where you are going? Earned value methodologies are invaluable in assessing expenditures against the budget. Be honest when estimating percentage complete, as overstatements can be disastrous. Also, perform revised estimates to completion (ETCs) as another means of continuous cost monitoring.

Depending on the cost accounting system in place and the nature of the program being run, an ETC might be performed daily, weekly or monthly. Failing to monitor costs closely limits your ability to initiate preventive interventions and react to overruns. Never be surprised!

■ Remember, more time costs money. A key part of managing your program costs is effective time management. Early in the program, it is easy to miss or extend deadlines based on the belief that there is plenty of time. However, the longer a program is extended, the greater the program costs will be. Remind your team of the importance of meeting program deadlines as a primary means of staying on budget. Minimize schedule changes!

■ Deal with cost overruns. In spite of meticulous planning and monitoring, cost overruns will occur. What do you do? Assuming all of the obvious cost-saving steps have been implemented, it is time to think outside the box. Consider actions such as sharing resources with other programs, restructuring the project team or renegotiating with subcontractors. Be creative!

■ Be vigilant when closing out the program. Program cost management theoretically should be easier toward the end. Unfortunately, that is rarely true, and the margin for error during the end phase is small. I call this time “docking the boat.” Be sure expenditure rates conform to the budget and that the budget accounts for all costs. Be alert for unexpected costs, as reaction time is minimal. Encourage communication among project team members. Stay on the same page until the effort concludes.

Rob Grabow is a business program manager with DHA Group, a management consulting and contracting firm in Washington, D.C., that primarily serves federal civilian and defense agencies.

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