Miserly pursuits

‘Look after the pennies and the pounds will look after themselves’. It’s nigh on impossible to reach adulthood without this old proverb burning into our brains. Especially up here in Scotland. While it may make sense when managing our own money, does it hold if your job is to manage someone else’s?

If that sounds like an odd double standard, consider this. When we conduct project appraisals, the client’s team members often grumble about ‘penny pinching’, or ‘nickel and diming’, the perception (and often the reality) that those in control of a project’s budget are seeking to withhold money that has already been committed.

To get here, the team has put great time and effort put into developing a project’s budget. The business case has been made; the money is available. But project managers somehow think they’re doing God’s work by keeping the purse strings tight. It’s bizarre behaviour, really, with detrimental effects on the project’s outcome. Because if you’re aiming to save money at every stage, you’re not focused on the important stuff.

Project decision drivers and corporate values play a role here. I recall an instance when a CEO at a previous employer introduced the new corporate branding with the obligatory core values. These included ‘Financial Discipline’. Hard to argue with that. After all, spending like drunken sailors is good for no one. Just ask the sailors once they’ve sobered up!

But it had unintended consequences. Managers were held accountable to this core value, with bonuses tied to its implementation. This, however, empowered a culture of not spending when needed, which led to asset value degradation. More capital was then needed to counter the negative operational effects on plant and equipment while making projects more complex. Hardly what the CEO had in mind.

Project value over corporate aspirations

The big picture can quickly get lost with such an approach. On projects where lost revenue is counted in the hundreds of thousands of dollars each day—or in large, liquidated damages—to seek the cheapest option, or to make savings after a commitment has already been made, can delay crucial decisions, impeding progress and setting up expensive disputes.

True, the effects are more obvious on schedule-driven projects. But the misalignment of incentives—and misunderstanding of the goal of financial discipline—can show up anywhere. We see it all the time. And yet, corporate recognition may go to the ‘careful’ project manager. This unhelpful behaviour is captured in another adage: ‘penny wise, pound foolish’. It’s not only bad for the project’s bottom line, but demotivating for the team, too.

For project leaders, a more helpful financial proverb is ‘when you’re in for a penny, you’re in for a pound’. In other words, to get the project over the line, spend now or get ready to spend more later. And remember that when you look after the pennies, they are really all that gets looked after.