I just read a GAO report (GAO-12-795) describing the renovations underway at the United Nations complex which sits between 1st Ave and the East River in Manhattan. The project started in December 2006 when the UN approved a $1.88 billion program to modernize its headquarters. In July 2012, when GAO did its study, the project was $430 million (roughly 23%) over budget. To be sure, it’s a massive multiyear complex project taking place in North America’s largest and most densely populated city. So, in many respects it’s not surprising that cost estimates developed years ago would be inaccurate given the reality of today’s situation.
But what is interesting is how the UN General Assembly decided who should pay for the changes.
The UN is an organization with 193 member states (it’s called the UN General Assembly..for a list of states go here). When they vote to do something it’s called a UN Resolution. In several resolutions, the UN General Assembly unilaterally made changes to the project’s scope but did not add more money to the budget, asserting that the project office should be able to absorb the cost in the current budget.
For example, in one scope change, valued at $20.7 million dollars, the General Assembly told the project office to absorb $17.4 million from the original project budget and then raided the UN’s Peace Keeping Operations for the other $4.2 million. I had to read that part of the report twice. I found it hard to believe.
All this said, the fact is the UN General Assembly is really no different from most groups of stakeholders (except yours don’t get to pass Resolutions!). The project manager and team diligently work to develop an estimate with the best available information. However, in multiyear, complex projects, situations change, sometimes drastically, which cause a change, usually an increase, in scope. Most people agree that the scope increase is valid and yet stakeholders expect the project office, or contractor, or team, to find the money someplace else to do the work.
I’d like to know why you think that’s the case. Here are some reasons I think that’s the case. Stakeholders/clients–
1. Are skinflints and want most things for free.
2. Think that the project office/team/manager “padded” the estimate and that there’s plenty of money left.
3. Are convinced that there’s more money hidden in the form of contingencies so that’s what they should use it for.
4. Believe that if you want more work from them the project office/team/provider should just eat the costs and accept lower margins.
5. Think that the project office/team/provider should have foreseen the extra costs. The fact that it wasn’t done is not their fault as stakeholders.
What do you think? What’s the reason your stakeholders think that they shouldn’t have to pay for scope changes?