United Nations Complex in New York City
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?
J. LeRoy Ward, PMP, PgMP, Executive Vice President, Product Strategy & Management, ESI International, brings more than 35 years of expertise in project and program management to the refinement of ESI’s portfolio of learning programs. He works closely with ESI clients worldwide to guide the assessment, implementation and reinforcement of knowledge and skills that allow for the effective measurement and successful adoption of learning program objectives.
I represent the client side and agree with numbers 1 and 5 on your list of possibilities as applicable to more cases than less, but one more possibility is sometimes the client’s expectation for more leniency on the provider’s part in pricing the extra firstly by acknowledging that this is additional business for them without going through the proposal phase and that extra cost in getting the job in the first place and secondly a possibility that this is important for the client in terms of accomplishing some project goal that they have committed to before their managing board, etc., and they need the provider’s help and flexibility as part of the project team without necessarily having budgeted for all the full cost that they are asking for.
Of the above list, I see 2, 3, and 5 as really the same thing – the stakeholder thinks the budget is padded or the project office should have ‘foreseen’ extra costs, i.e. padded the budget.
Most people in leadership positions got there by being the most assertive of their group, that is having the chutzpah to ask for something they were not really entitled to. So, you will always be negotiating with this sort of individual.
If scope goes up but budget doesn’t, something else will have to give, probably quality. Or you agree to the increase in scope in one place and look for other places in the signed off requirements where there is some wiggle room.
Thanks for your comments. I find it interesting that Sinan agrees with both 1 and 5, which means there’s plenty of blame to go around I guess. Also, Evelyn, your comment, in part reads, 2 and 3 are the same. Seems like clients look at contingencies as “padding.” I suppose they could be perceived as such if the contingencies are not made transparent. The problem with making them transparent I am told by many project managers is that then they are open to critique. In other words, some might say, “oh, you don’t need that much money to fix things if the Mayan calendar prediction comes true. You only need half that money.” Should we make contingencies transparent?
“Should we make contingencies transparent?” – They’re not already transparent?
They’re part of the project plan that I manage and the stakeholders own (In my way of running things at least). I don’t pad my costs, I have them broken down as far as I reasonably can get them before I seek approval from the affected stakeholders. If they think the cost estimates are ‘padded’, I invite them to point them out to me. I don’t buy the ‘it’s too complicated to calculate’ theory either – if it’s too complicated for the PM to show, then you need a new PM.
In your list above – “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.” Fine line between extra costs due to scope expansion and a multi-year project being impacted by inflation. A requested change requires the stakeholders approve before it’s implemented and that includes a cost management plan adjustment, which is approved by the stakeholder footing the bill. The cost inflation not being considered by the PM for a multi-year project is definitely the PM’s fault and I’m surprised that any stakeholders with any financial accumen would have missed it.