Best Practices – Project Management – Why You Can’t Estimate Project Management Like Other Costs and What You Can Do About That.

In previous posts, I discussed the role of a Project Manager and some of the best practices for contracting a PM.

Recently, a friend reached out to ask for a benchmark for Project Management Services.

A Vendor had quoted her a rate that was based on a cost per square foot rate and she wanted to know if their rate was competitive.

Unfortunately, I had to give her that most elusive response…”it depends”.

As I explained, Project Management services are not typically quoted as a cost per square foot.

This is because the effort of project management is not a function of the physical scale of the project.  The physical size of a project does play a role, but the complexity of the project is a far more variable metric.

More commonly, Project Management Services are quoted as a percentage of cost-of-work.  Even though this is more common, this form of rate based pricing is still too subjective to quote without using a wide range.  However, since complexity is often reflected in the cost of work, it’s as close as one can get without diving into greater detail.

Complexity itself is difficult to measure.  Without a detailed scope or without understanding the parameters of a specific site it’s actually impossible.

The best way to benchmark Project Management services is actually to solicit hourly rates and to estimate the number of hours.

This can be frustrating when trying to establish early pricing (or budgeting), but it is the only reliable way to ensure apples to apples quotes.

Soliciting a comprehensive set of qualifications is also critical.  Project Management is a service where experience matters.

Awarding the lowest cost or lowest hourly rate (without validating experience) is never in your best interest.

Now, to be clear, I did not say that you should contract your PM on a Time and Material basis.  I’ve warned against this in the past.

You should solicit quotes in a detailed manner, but once the scope and the parameters of the work are defined, you should require your PM to fix their quote into a stipulated sum.

This will ensure that your PM has incentive to complete the project in the time you’ve defined.  Time and material quotes do the opposite and place unnecessary burdens on the Owner to track and monitor the hours worked.  They also could be violating employment laws, but we’ll talk about that in another article.

Unfortunately, there is no straight-forward way to benchmark Project Management Services.  Similar statement would also apply to other members of your project team, but for this discussion, our focus is on the PM.

What about you?  How do you budget for your Project Manager?  Have you develop a reliable method for addressing complexity?  Tell me your stories.

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