The cost of Project Management and the PMO

In this podcast, Ricardo talks about how appropriate the amounts allocated to the project management activities in the project. He explains that there is no an international standard to define the values, but there are good practices. Ricardo also explains that the percentage for the costs of project management is variable in relation to the total project cost, will be less on projects that cost more and more expensive in lower-cost projects.

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Episode transcript

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Hello everybody welcome to the five minutes PMO Podcast today. I like to discuss about the cost of the project management. I received the message last week from a project manager in Saudi Arabia that works in the utilities project. And he asks me about the cost ease, sad that he has a project manager that was outsource it, a consulting company to do that. And it said, how much do I pay for them? And how do I pay for them? And then first I like to start that there is no international norm on that.

There is no standard that obligate us to apply half a percent, 1% to percent or 10%, but these are the, my own experience and base it on the litterateur. There are a lot of publications about this topic, but for me, the cost of project management comes from half a percent to 2%. I know that this number is extremely polemic number, but it's very, very important to understand that this is the cost of what I call the PMO the Project office.

So this is the cost of the reasonable cost for me, for having the PMO stricter base it on their portfolio of projects. So if I have a PMO, that's managing a huge portfolio, maybe this number will be even lower. If I have for a very small set up a project with a very small Valley, maybe this number will go up, but traditionally it will be around one or 2%.

I'm not talking about the administrative cost of a Project. This is even a beer. This will be 10% or maybe even more. I'm talking about project management cost the cost to produce a trustable capital, the cost to produce a reasonable risk management plan, the cost to make all the change control board meetings, to control the project, to apply all what we call the PMBOK standards inside of a project.

So this will be from half percent to 2%. It's really important to understand that this number will VRI with the complexity of the project, with the location of the project, for sure, in remote places, the cost of project management will go up in some countries. This costs will go up because of the scarcity of project managers turned, the aspect that the technology, the available technology, if I have a huge infrastructure of technology, then this price will go down because I have all this infrastructure that I can use to save money, collecting data, analyzing data.

So it's very important to understand that this is not the fix a number and order part of the question that I want to approach is that, okay, regardless of its half a percent, 1% or 10%, how do I boot this cost into my project? I will give you two ways of doing that the first way he is create a group in your day to day blue BS, call project management.

And in this project management group, you put all the project management cost and it will, you will appropriate this cost in core, in this cost base it on the percent complete of the order, operational tasks. This is a good way of doing that. It's not my favorite way. My favorite way is the second one. The second one is to create a nod. There Project look that WBS short of my main project, we will include only the operational tasks to create the product of the project.

Then I create a second one, a second scaffolding, a second WBS only with the project management tasks. So I never put meetings. I never put acquisition tasks. I never put something like evaluation of the risk management plan inside my project. My Project will be the construction. There is only one thing that I accept is that four acquisitions.

If the exigencies are critical and important, the top of your car projects, then I will accept to put it inside the main project, but all the project management related, the tasks I use in the, not at all WBS, a knot or scandal, a nodder Project and this year that will incur in their own costs. And this costs should be reasonable comparing with that object that they are managing. There is no sense.

It's no sense to expand $10,000 to manage a project that cost $20,000, but it's extremely reasonable to spend $10,000 to manage a project that costs $5 million. Look that up the difference. And if we take the project management tasks to another Project, then we can appropriate resources'. We can do all this stuff

Speaker 1 (5m 47s): And all the cost management plan for the year

Speaker 0 (5m 49s): Project Management project. And with them that we can see that if for our company, half a percent is good, is a fair number are its 1% or 2%. So basically on that, that I can tell you, as I started that the magic number is around one or 2%. This is the magical number, but this is not a rule. Again, this is not the rule. I'm not telling you that from tomorrow.

If you were running in five, you are overrunning our project management cost because every single company has its own maturity in project management. I hope you enjoyed this podcast is a great podcast for discussion and see you next week with another five minutes, be on podcasts.

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