The Cost Of Project Management

The Cost Of Project Management

Have a project but unsure how to budget for the costs of project management? Or just looking for some information to benchmark project management costs?

This article shares some of the costs models in project management, typical expense rates and a model for estimating the return on investment for project management.

Businesses Need Project Managers

Businesses worldwide constantly value project management as the most important skill organisations need to achieve its objectives.

I work with companies of varying size and maturity managing projects ranging in complexity. A common observation I have seen is a lack of understanding and discipline to plan, budget and monitor the costs of “project management”.

Why Are The Cost Of Project Management Misunderstood?

I think this is partly to do with the fact that many organizations simply do project management “on the side”. They might have a marketing manager running the delivery of a corporate re-brand for example, or Carl form IT managing the implementation of a new system upgrade.

The second reason is that for most company’s, where project management is not their core business, they lack a level of understanding of the real costs of managing a project and the typical cash flow burn rate of a project.

This often leads to projects being under funded from a project management cost perspective and ultimately disbanded halfway during the project. Here is a guide for general project estimating.

The Cost Of Poor Project Management

Estimating the cost of project management is critically important to limit the risk and cost of poor project management and the project running out of budget during delivery.

The Costs Of Project Management Services

Most clients I work with ask me the same question “what is a good ball park for budgeting for project management costs” and my response is always the same – It depends on the size and complexity of the project… But a good rule of thumb is somewhere between 8% and 18% of the overall project budget.

This might seems high, especially when they have historically allowed between 1% and 2% of the project budget.

The Costs Of Project Management Consulting

Understanding the costs of project management consultants is a little bit different and these engagements are typically like any consulting engagement, either a fixed fee for a specific project or an adhoc hourly rate.

Fixed fee’s are calculated on an estimate of the scope and how long each tasks will take then multiplied by the consultants hourly rate.

Working on an adhoc hourly basis, attracts the standard hourly rate that the consultant charges, for example our hourly rate, depending on the project ranges from $140 to $180 per hour.

Consulting rates are typically higher than project management service rates, because you are paying for the consultant to impart some of his expert knowledge and apply it to the needs of your business. If done correctly, their engagement with your company should be only a short term and your organisation should receive much more value than the costs of the engagement.

Cash Flow Curve Of Project Management

Now that you have a way to calculate the costs of project management, either from internal or external resources, what does the burn rate look like?

Projects, unlike operational costs are not flat and ongoing, project cost profiles are typically front end loaded. This is due to the unique nature of a project which require detailed planning upfront, before the project can begin implementation.

I normally advise my clients to allow 30% to upfront planning, 60% over the delivery delivery and management period and 10% for the closeout and review process.

Estimating The Return On Project Management Investment

The project management rates mentioned above may seem high, especially to smaller companies that are more cashflow sensitive. However a good project manager really can be worth his weight in gold.

For example, on a recent project – we delivered the project on their behalf. We came in on time and 40% under budget. That is 40% cheaper than their internal costs.

In this case, it is pretty easy to calculate the return on investment, not only did we save our client money, but also ensured they received the next project from their client due to the on time and on budget delivery their client received.

Closing Thoughts

I hope this article has shed some light on the importance of budgeting correctly for project management and provided some tools and models for basing these budget assumptions on. Starting with a sound project management budget will allow you to resource the project effectively and reduce the risk of poor project management.

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Who Wrote This Article? ...(It was: Chris O'Halloran)

I'm "Chris O". I've managed hundreds of millions of dollars worth of projects since the inception of my career. I love helping others figure out the intricacies of project management on any scale. Come find me on twitter or google+

Comments That Have Been Left So Far:

  1. It is wonderful one.

  2. Interesting article.
    What I wonder is, that how do you see project management costs change when project managers start using online collaboration tools with their projects. We have seen, that with a good tool, you can cut the cost of project management to a half. Most of those savings come from cutting the status meetings, since the info is always up to date.
    But that requires, that the manager uses the tools wisely. More than once we have seen, that manager only uses the tools to get more fancy looking reports and even the project manager can get lost on the “project-planning-zone” where plans keep improving but nothing real happens.
    We created a new online tool for achievement oriented projects, which you can find at http://www.akselworks.com but some project managers feel, that this kind of tools are a threat to their profession. How do you see it?

  3. Rocco Sergi said:

    Thank you – this article was very much ion the mark in answering the queries I had about fundamental Project Management issues!

  4. I am looking for educational materials for my students doing a course MBPJ 611 Project Cost, Budgeting and Risk Management. I am looking for good sources that I can use in instruction

    • Hi Keith, what is your question? you may reference any material you find on this site, alternatively look to PMBoK, Prince2, ISO:21500 and Agile other references.

  5. I go to see each day a few websites and information sites
    to read articles or reviews, however this web site gives quality based content.

  6. Robert Batts said:

    enjoyed the article on project management and project estimates. Found them very helpful.

  7. Carla Sousa said:

    This is a very interesting article!
    I’m currently doing my thesis on the value of project management and I’m looking for articles on the literature about the cost of project management. Do you have any recommendation?
    Thank you

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