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Advances in Project Management: Project economics: Wishful thinking, conspiracy of optimism or a self-fulfilling prophecy?

SERIES ARTICLE

By Prof Darren Dalcher

Director, National Centre for Project Management

University of Hertfordshire 

UK
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Introduction to the December 2013 Advances in PM Series Article 

Financial management is crucial to the successful delivery of projects, especially when success, as so often is the case, is primarily measured in monetary terms. The Sixth Edition of the Association for Project Management’s Body of Knowledge, published in 2012, defines financial management as “the process of estimating and justifying costs in order to secure funds, controlling expenditure and evaluating the outcomes.” (p. 162)

In essence, financial management relies on estimating the cost of the work and quantifying the value of potential benefits likely to be derived from the expected outcomes. The feasibility study, options appraisal and development of a business case typically provide the initial justification for undertaking the work through the evaluation of costs, benefits and risks of alternative options. This underpins the rationale for commissioning the work and may also be utilised in selecting between competing solutions, projects or programmes.

Indeed, securing funds is a growing challenge, especially in times of financial austerity, limited resources, greater public scrutiny and an overarching need to achieve more with less. The constant stream of public projects failing to meet their budgetary baselines provides a continuous reminder of the need to get a better grip on the financial aspect of project work.

Enter Economics

Economics endeavours to discuss how a society, or a connected group, can balance ever expanding human wants with the increasingly scarce resources at their disposal.  It is particularly pertinent as it increasingly emphasises human wishes, behaviours and interactions as the basic elements of microeconomics, alongside capability, resources and targets. It can be particularly useful in determining if investment decisions are sound and sensible, and provide a basis for comparing and devaluating alternative options, solutions and projects in terms of utility, impacts or effectiveness.

If we accept the view advocated in the front pages of the popular press, and some of our own surveys that the majority of important projects experience significant cost overruns, we are obliged to consider the circumstances that build up towards such ‘failures’. It is also incumbent upon us to interrogate the dynamics leading to these outcomes.

The question

Assuming that the majority of projects considerably exceed their baseline estimates, we can develop three potential lines of interpretation:

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Editor’s note: The PMWJ Advances in Project Management series includes articles by authors of program and project management books published by Gower in the UK.  Each month an introduction to the current article is provided by series editor Prof Darren Dalcher, who is also the editor of the Gower Advances in Project Management series of books on new and emerging concepts in PM.  Prof Dalcher’s article is an introduction to the invited paper this month in the PMWJ by Gower author Michael Cavanagh.  Information about the Gower series can be found at http://www.gowerpublishing.com/advancesinprojectmanagement. 

About the Author 

flag-ukDarren Dalcher, PhDDarren Dalcher, PhD 

Author, Series Editor 

Director, National Centre for Project Management

University of Hertfordshire

UK

Darren Dalcher, Ph.D. HonFAPM, FRSA, FBCS, CITP, FCMI is Professor of Project Management at the University of Hertfordshire, and founder and Director of the National Centre for Project Management (NCPM) in the UK.  He has been named by the Association for Project Management (APM) as one of the top 10 “movers and shapers” in project management in 2008 and was voted Project Magazine’s “Academic of the Year” for his contribution in “integrating and weaving academic work with practice”. Following industrial and consultancy experience in managing IT projects, Professor Dalcher gained his PhD in Software Engineering from King’s College, University of London.  Professor Dalcher has written over 150 papers and book chapters on project management and software engineering. He is Editor-in-Chief of Software Process Improvement and Practice, an international journal focusing on capability, maturity, growth and improvement. He is the editor of the book series, Advances in Project Management, published by Gower Publishing of a new companion series Fundamentals of Project Management.  Heavily involved in a variety of research projects and subjects, Professor Dalcher has built a reputation as leader and innovator in the areas of practice-based education and reflection in project management. He works with many major industrial and commercial organisations and government bodies in the UK and beyond.  He is an Honorary Fellow of the APM, a Chartered Fellow of the British Computer Society, a Fellow of the Chartered Management Institute, and the Royal Society of Arts, and a Member of the Project Management Institute (PMI), the Academy of Management, the Institute for Electrical and Electronics Engineers, and the Association for Computing Machinery. He is a Chartered IT Practitioner. He is a Member of the PMI Advisory Board responsible for the prestigious David I. Cleland project management award and of the APM Professional Development Board.  Prof Dalcher is an academic editorial advisor for the PM World Journal.  He can be contacted at [email protected].