Engineering costs vs. personal time costs and enterprise value offering strategy

Question

Since quite a long time I ask myself why is there a commonly reported problem (by many peers) to get adequate up to date hardware and software tooling to accomplish IT projects in a competitive way (in fact, in direct analogy to industrial automation and machine workforce)?

Then I have found this amazing quote:

"Unfortunately in many companies equipment and engineering time are completely different costs according to the accounting structure, and it often sadly makes financial sense to go cheap on the hardware even with the huge extra expense of the engineering time. Boss may not have control over it."

My first hypothethis has been that in a consulting project you of course push revenue on actually selling time so optimization is not a managerial hot topic (but risk of mental damage to employed engineers). But then, same has been in fixed cost projects. Maybe, because also here a fixed amount of time has been sold and other type of internal cost just diminishes the projected revenue. But, manual work produces unneeded amount of time..

Please help me understand this. Question: what is your solution to this to stay competiteve,drive good revenue and growth and not lose best of your engineers?

If you think I am wrong with this question in this community: are not savvy PMs who are actually able to recognize and communicate this waste of resources?

Answer 1

I'm going to break down my response in two parts: Challenge and Suggestion, as they apply to PMs.

[1] Challenge

I do feel that this question is pretty broad for this site for 2 reasons:

• There isn't a "one size fits all" solution
• PMs struggle here because they may not have the authority to be the agents of change or have access to these costs.

For the first reason, there are factors such as cultural, organizational, financial management that would provide to be obstacles for PMs to be able to create and deliver business cases to solve this problem. For instance, culturally, what is the general attitude of the management stakeholder team towards cost-based discussions? YMMV.

For the second reason, PMs may be able to account for direct costs and labour costs, but they wouldn't be able to identify the challenges with infrastructure without input from the appropriate team(s) as it's simply not within their domain.

[2] Suggestion

I can't see any reason to decline upgrades when a proposal to improve infrastructure has the right data. Most of the time, it's been my experience that the right data/metrics aren't being collected++.

The suggestion here is to provide a financial management setup for IT services that takes into account the expenditures for services rendered as well as labour costs.

If you can show that labour costs go down by increasing infrastructure costs (direct costs), then you have a business case that's tough to disagree with.

Again, these are from a strategic perspective, but hope this provides some level of insight.

• ++ ITIL has information on Financial Management that may be of use*

Answer 2

TL;DR

The underlying project management question is really how far your mandate goes to optimize a project's burn rate. While a project manager has some responsibility in this regard, accounting and strategic business decisions belong elsewhere in the organization.

Longer Explanation

[W]hy is there a commonly reported problem (by many peers) to get adequate up to date hardware and software tooling to accomplish IT projects in a competitive way[?]

From a project management point of view, the role of the project manager is to make the costs of the project as visible and transparent as possible. However, the budget and strategic allocation of resources is typically handled at the executive level, and while a good project manager provides as much input as possible the actual decisions are based on business criteria that may not be project-focused.

From a business point of view, labor costs and capital costs are accounted for differently. This is generally a decision made by the CFO and/or the finance team for revenue-reporting reasons, and often has little or nothing to do with optimizing for project-based accounting.

If you are a project manager whose project is suffering because the project's cost-structure expends labor to make up for a lack of equipment, automation, or other capital expenditures, then you should be tracking those costs, making them visible to project stakeholders (including the executive sponsor, who usually has budgetary responsibility), and offering mitigation strategies if you can. However, your job is to provide information to decision-makers, not to expend project resources in a search for alternative cost structures.

You're expected to manage the project as best you can within your constraints, and to make those constraints visible, but you have no mandate to modify the cost structures of the organization or realign the business model. Some of the best project managers can use personal influence and hard data to make the case for budgetary changes, but the actual decisions about how (or even whether) to do so rest with upper management.