Project costing why do we add in everything, plus the kitchen sink?

I have been wondering why we cost projects as we do in IT. The model seems to be we have to estimate and take into account everything: all the project resource costs; all the hardware and software costs; all the training cost; all the integration, testing, parallel running, user costs for training, loss of productivity costs when we implement. Heaven forbid if the length of the contract takes you through a refresh cycle else that will need to be added in as well.

Can you image if this was the approach to buying a house and the purchase price was set the same way: house value, all the taxes, legal fees, as well as say ten years of heat, light, maintenance. Better throw in cleaning costs as well - it just isn't a sensible thing to do.

Would it better to show project costs net of cashable benefit. So anything with a positive number doesn't look too good, might get a bit more CEO and CFO attention that way.

Of course projects with big revenues for suppliers generate their own challenges. I have always been intrigued by the end of quarter/year deals that come our way. I always ask "do you prefer to reduce your revenue or your margin?". The answer is always reduce margin. I was taught when I was running a business or a bit of a business that "growth is for vanity and profit is for sanity" and as the ICT industry continue to change, this appears to be even more true.

Imagine the scenario that you have built your business on increasing revenues, indeed the analysts that set your credit rating, or even determine buy, hold and sell investor statements look for revenue growth. Margin decline is just put down to the competitive nature of the market. It is hard for the sales team to say lets reduce revenue, when the market expectation of success is revenue growth - a catch 22? But looking forward big revenue projects will continue to reduce - I have just seen this same sentiment expressed by SAP. So revenue declines, margins have declined so profitability will decline not slowly but quickly as the big existing contracts are not replaced. This is not unique to the ICT industry and as other industries have run this particular course evidence shows it leads to consolidation and cost cutting. If revenues are down and margins are down, costs must come down else it is buy-buy business.

Comments

[David Gale]

So, why wasn't there a published national ROI for the e-Gov programmme?

[David Gale]

The one item that should be included in project costings, which is too often missed, is the cost of project meetings...

[Tim]

costs and benefits should always be separated out and clearly stated otherwise you've got no handle on measuring success nor a sensible baseline for changes.

more importantly, you should include cost of exit estimates - I see far too many services locked in to high opex because refactoring and testing the underlying applications is too expensive.