The Benefits of Documentation

July 27th, 2010

As a practitioner and supporter of agile and lean, I am a strong believer in doing things for a reason and only those things that add value. So when it comes to documentation, many with basic exposure to agile may think that the methodology means that project documentation is not created. Instead, it should be more about creating meaningful plans and if that means documentation, then it should also add value and be the proper amount. I do not believe in producing documentation (unless the contract specifically requires certain documents) for the sake of documentation. While many technical individuals balk at the thought and mention of documentation, I personally see some real benefits. Below are my top thoughts on documentation:

• Determine What Others Need to Know – Think through all aspects of the project, implementation and post launch support and maintenance to determine what those within the direct project team and ancillary teams may need. If the implementation team is not the team supporting the project, there will undoubtedly be a need for some degree of documentation. Carefully analyzing and consulting others on what they may need will better ensure your time is well spent.

• Determine the Proper Method & Style – Once you have a handle on the content and type of documentation needed, you can look at the audience of that material. Does it need to be constructed in a searchable web page, as a wiki page or something more formal? The writing style and delivery method should be based on the audience, which is in turn determined by the content of the material.

• Determine a Process for Updates – This is the hardest part. Keeping current with documentation requires a regimented process. Within our project schedules we should plan for continuous documentation updates and ensure that we take the time for these checkpoints. Once you get in a rhythm with documentation, work hard to keep it going. Restarting this behavior and activity after a period of inactivity can be a challenge and hard to recover.

• Consider Other Benefits & Applications – While the first three bullets focus on providing documentation to support a project or communication with others, the process of documenting is very much a planning exercise. Just going through the process of documenting requires our left brain, analytical hat and thinking through all aspects. This in itself can be very useful. I’d suggest identifying the major unknowns and high risk areas and determine documentation tasks for select portions. This can be helpful in getting the analysis started.

Documentation is a form of communication. Making good decisions about what to document, the method, style and process surrounding documentation is important. Every task within our projects requires careful consideration and documentation is no different. In order to be effective, you must have a specific goal and audience for the material.

How are you using, or not using, documentation within your projects?

Ann’s professional focus is information technology project and program management. She is a certified Project Manager (PMP), a certified ScrumMaster (CSM) and a member of the Washington D.C. Chapter of the Project Management Institute. Educationally she holds an MS in Technology Management and a BA in Organizational Leadership and Development.

© Copyright 2005 – 2010 Ann E. Drinkwater. All Rights Reserved.

The Cost of Capital

July 26th, 2010

The opportunity cost or simply, the cost of capital for a project is the discount rate for discounting its cash flows. The projects capital cost is the minimum required rate of return on funds committed to the project, which depends on the riskiness of its cash flows. Since the investment projects undertaken by a firm may differ in risk, each one of them will have its own one unique cost. It should be clear at the outset that the capital cost for a project is defined by its risk, rather than the characteristics of the firm undertaking the project.

The firm represents the aggregate of investment projects undertaken by it. Therefore, the firms cost will be the overall, or average, required rate of return on the aggregate of investment projects. Thus the firms capital cost is not the same thing as the projects cost of capital. Can we use the firms cost of capital for discounting the cash flows of an investment projects? The firms cost can be used for discounting the cash flows of those investment projects, which have risk equivalent to the average risk of the firm.

As a first step, however, the firms cost can be used as a standard for establishing the required rates of return of the individual investment projects. In the absence of a reliable formal procedure of calculating the capital cost for projects, the firms cost can be adjusted upward or downward to account for risk differentials of investment projects. That is, an investment projects required rate of return may be equal to the firms cost of capital plus or minus a risk adjustment factor depending on whether projects risk is higher or lower than the firms risk. There are does exit a methodology to calculate the cost of capital for projects. The objective method of calculating the risk-adjusted cost of capital for projects is to use the capital asset pricing model.

Varying Opportunity Cost of Capital

Evaluation investments we have made a simple assumption that the opportunity cost of capital remains consistent over times. This may not be true in reality. If the capital cost varies over time, the use of the internal rate of return rule creates problems, as there is not a unique benchmark opportunity cost to compare with internal rate of return.

There is no problem in using net present value method when the it is various over time. Each cash flow can be discounted by the relevant opportunity cost. It is clear that for each period there is a different cost of capital. With which of the several opportunity costs do we compare the internal rate of return to accept or reject an investment project? We cannot compare internal rate of return with any of these costs. To get a comparable opportunity cost of capital, we will have to, in fact, compute a weighted average of these opportunity costs, which is a tedious job. It is, however, much easier to calculate the net present value with several opportunity costs.

http://professional-edu.blogspot.com/2010/02/144-cost-of-capital.html

Which Is A More Valuable Resource Time or Money

July 25th, 2010

A project is an endeavor by a group of people who come together for the accomplishment of a common goal, that of completing the project within the allocated time and money.

Project management can also be described as the process of converting in reality the dream seen by the architects and consultants.

The practice of tracking the progress of this project at regular intervals is called as project monitoring. Project monitoring can be done by planning programs like MsProjects and Primavera.

But in India the problem with projects is that the planning stage is not treated very seriously. At times planning is carried out in parallel with execution, which is a wrong practice. Every project should have a master plan prepared before project execution. This master plan can later be modified at regular intervals using the above mentioned software tools. This modification is called as project tracking and monitoring. Project tracking can be done depending upon the availability of labor, finance, materials, equipments and most importantly time.

The last mentioned resource can’t be created and once wasted leads to loss of all the other resources. This is the sad story of all the projects whether it is infrastructure like roads, airports or utilities like hotels, residential projects and mixed use establishments, in India. As planning is not taken seriously a very valuable resource called as time is lost. A standing example of this is the infrastructure project of Bandra Worli Sea Link. But the moot question is why planning is not taken seriously.

My personal opinion about the cause of this malady is our fickle human nature. Today we are so obsessed with saving money that we lose time and quality. We lose time by taking on board the wrong people to execute our projects without looking at their technical and financial competencies. To elaborate, I would like to give an example. Government tenders are invariably decided in favor of the lowest bidder L1, which they call as favorable vendor as he is ready to do the job at the rate decided by the government, without looking at their technical competencies. By financial competency, I mean the solvency of the vendor undertaking the project.

The vendor should have adequate cash flow to match with the owners so that the project does not derail from its path. This mad obsession to save money also leads us to recruit labor who are not at all suitable for the trade for which they are selected. The practice today is that labor (even engineers) are recruited keeping the cost factor in mind rather than their technical competency. I have seen a civil engineer following up the consultants’ payments when that job has to be done by the finance and recoveries department or the project manager. This happens as there are very few people in the finance and recoveries and there are a lot of bills receivables..

The main reason for this is the same mad rush to save a resource that can be easily reproduced in the process neglecting one that cant be recreated. My only question to all project managers would be. WHY IS A RESOURCE WHICH CAN BE REPRODUCED GIVEN MORE IMPORTANCE THAN A RESOURCE WHICH CANT BE SUBSTITUTED..