Project Management Tips and Techniques:
Include Deferred Benefits in the Cost of a Scope Change
Tom Mochal

Each month, Tom Mochal, President of TenStep, Inc. presents project management tips and techniques for planning and managing a project. TenStep, Inc. has a comprehensive, scalable project management process called TenStep (www.TenStep.com), as well as a project lifecycle process called LifecycleStep (www.LifecycleStep.com). Tom has also published a popular book called Lessons in Project Management that can be purchased at  www.TenStep.com.  Pipeline readers receive 20% off any TenStep or LifecycleStep purchase by entering the coupon code of "Pipeline" in their purchase.

Whenever you receive a scope change request, you should ask two fundamental questions.

1. What is the business value of the change? The client must answer this question.

2. What is the impact on the project in terms of schedule and budget? The project manager or project team members can answer this.

The project sponsor cannot make an informed decision on a scope change request without understanding the business value of the change and the impact to the project. Typically the project manager provides information on the impact to the project in terms of effort, cost and duration. A common deficiency in determining the impact, however, is that the estimates do not take into account the cost associated with deferred project benefit.

In other words, your project will deliver some benefit to the company. The benefit usually starts immediately after (or soon after) the time the solution is implemented. If a scope change request results in the project being delayed, the cost of the scope change should include not only the cost of the actual change itself, but also the cost of the delayed benefit. Look at the following example.

Let’s say your project costs $100,000. The business benefit is $5,000 per month in increased revenue (or decreased cost). As the project is progressing, the client makes a change request that will cost $5,000 and add one more month to the project. The change has a payback of $1,000 per month (the value).

You may go to the sponsor with a change request that states that there is a $5,000 cost and a payback in five months at $1,000 per month. However, the part that is missing is the lost opportunity cost associated with implementing one month late. In this case, implementing one month later than planned also costs the company $5,000 in initial benefit savings, making the total cost of the scope change request $10,000. The sponsor may or may not still approve the change. However, taking into account the lost value associated with a project delay should be a part of the scope change impact for the sponsor to see and understand.

Would you like to receive project management tips every week? Sign up for the weekly TenStep Project Management Tip of the Week at www.TenStep.com.