be exceptional to be effective _ how managing projects by exception helps your profits.

Is there a project where you don’t have to spend anything?  Whether its money or time and the less you spend the better the profit.  I’ve worked for companies where they try to monitor every penny …. others that trust you to spend …… and ones that fluctuate between the two depending on which way the wind is blowing.  This last version is the worst sort, no one knows where they stand, recipe for disaster for getting things done and guaranteed to add to a negative culture.
 
The approach to spending is important on a project and can greatly influence management time.  You can’t let all spending go unauthorised, it would get out of control. You can’t watch every penny, it’s just counter productive as you spend more time monitoring.
 
A basic authorisation process can easily waste an hour of working time; to ask, fill in the information or whatever the process, the requesters time and the authorisers time could easily put £50 on the cost of that item through time spent no matter what software you use.  At this rate you will be whipping out your profit on all transactions up to £500 ….. depending on your markup!
 
There is also the delay in waiting for the approval.  So frustrating for both the employees who can’t get on and the authoriser who is now a bottleneck for the project and is getting told they are holding up the project.
 
IDEA
If you could trust everyone it would be easy!  Yes, but what about the company cashflow, large expenditure at the wrong time will cause issues.

You need to find a balance and this is where managing by exception is really helpful.

Managing by exception means that you have a process but there are exceptional circumstances that you don’t use the process and get on with it.  In this case a designated limit to spend under.  A limit that it is more costly to authorising under or a limit you trust your employees to spend to.  Simple!

Simple enough, but every project is different, every employee is different.  Setting a £500 limit on a £5000 job means one transaction is 10% of the job, could be issues if it’s wrong!  Setting a £500 limit on a £500,000 job is only 0.001% great, but you will have hundreds of these to approve and those £50 administrative costs to get approval will very quickly mount up … along with the work while they wait for the bottle neck to clear.

SYNOPSIS
You’ll want to find a balance, somewhere between letting people get on and not wanting the profits to waste away unmonitored.
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SOLUTION
As with every project, the actions need to be proportional to the project, its risk, size and scope. 

To do this with exception managing, you need to start off with a generic limit per project that the company is happy with the risk.  Say 0.01% of the project value or manhours, this can then be greater for specific people with greater knowledge of the budget or procurement understanding, or keep it simple, the same across the board.

This limit can then be adjusted at the start of a project and be lowered for less complex projects or increased for more complex ones.  Tailored to be lower if the project has a low margin to protect profit, higher if there is more profit to play with but program is tight and you need to get on. 

Tailoring is the key to exception managing, it will only work in the long term for the company if it is specific to the project.  The company sets what they think their risk tolerance is and the project team can get on with getting the work done, knowing where the boundaries lie.

To be even more exceptional, exception management can be used in the client user relationship when change comes into play.  Set a lower limit for the cost of change that both sides that don’t claim for unless the change exceeds it.  Either in overspend by the user or a cost saving for the supplier.  It will stop slowing the project down with minor issues!
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So be exceptional…….. make sure you get the balance right and make the best profits you can.

I'd love to hear your views, experiences and comments and if you're interested in finding out more, drop me a line.

Thanks for reading
​Simon