Nate Habermeyer, APR: 0:00

Hello listeners. This is the risky planner podcast. Thanks for tuning in. Hey Albert, hey Nate, nice to see you again. Hey you too, man, ready to record I am, yeah, so my this is gonna be so today is quite a technical topic, but pretty relevant.

Albert Brier: 0:23

Anybody who's ever made a budget which kind of includes me, I guess I shouldn't admit to this, but I'm not exactly a budgets guy. You know, I say it all the time that I'm much better at managing other people's money than my own. But anyway, yeah, we're talking about annualized

Nate Habermeyer, APR: 0:39

budgets. Nate, yeah, that that, uh, resonates. I mean, I'm not really a budget guy either. You know, like when I was young, I told a cop, Captain Habermeyer, my dad, the Submariner, he of those, Hey, Dad, I need some money for blah, blah, blah. And he was like, go get a job. Yeah, yeah. And so my first job wasn't, didn't actually pay me any money. Oh, really. I was shoveling horse poop, clean up stalls. Nice. All summer long, I got to ride the horses.

Albert Brier: 1:10

You know, you just described, you just described a solid 10 years of my life I grew up in, I'm going to say extreme suburban Texas, where it's strange to break meaning, anybody who wandered into my neighborhood would mistake it for a rural part of the world. That's really not like I was, you know, 30 minutes from from Houston. But we had acreage, we had horses, and my chores involved restocking their food and, you know, mucking out their stalls and brushing them and making sure that the oh, one time we had this is has nothing to do with annualized budgets, but I feel like I have Okay, we're gonna get there. We will. But first, I want to tell you about the one time that my next door neighbor used a Colt Python to shoot a Copperhead snake to death in our

Nate Habermeyer, APR: 2:00

feed room one day, that sounds so Texas

Albert Brier: 2:03

dude. It was nuts. Like, this is the same neighbor. One time we had a Copperhead. Sorry, I said that was the copper cottonmouth. We had a cottonmouth in our pocket. No, no. These are two separate issues. This is two separate things. They both happened with the same neighbor. Okay, so this guy wandered over like my, my my older sister said she's she'd seen a cotton mouth in our lake, and so Mr. Walsh Schmidt, from next door, comes over with a, you know, a shotgun, like a pump shotgun, and just starts peppering the lake until the cottonmouth just kind of services. But later, my mom was moving hay around, and saw what she thought was a mushroom, until it hissed at her, and so she ran into the house, and we wound up, you know, calling Mr. Waldschmidt, because Mr. Waldschmidt is the most dangerous man I've ever met in person. And he showed up with his revolver, a big black Colt Python, and just started going to town on that poor Copperhead and blew like, three or four holes in the side of the feed room, chased that thing behind the barn into our woodshed, where he he finally put the one in it that killed it. But that that happened,

Nate Habermeyer, APR: 3:15

that is wild, isn't that crazy, and I wouldn't be surprised if this man, like, went on flights and just brought his gun with him and, like, nobody checked, because back in the day, they didn't, because he's, like, definitely a US Marshal, yeah? Because he's like, I'm just gonna do whatever I want. Well, you know, I

Albert Brier: 3:29

wouldn't be surprised like this, this always comes to mind for me when I think about things like this. Like, do you remember Indiana Jones Raiders, the Lost Ark? Yeah, I love that movie. That's great. There's a scene in there where they're having some kind of conversation about being prepared, and Indy just tosses a revolver into his suitcase, just like, Yeah, that's me being prepared. It's like you getting arrested by the TSA, Indy. What are you doing?

Nate Habermeyer, APR: 3:52

Yeah, that had nothing to do with budgets. No, nothing. You know, the snakes got their own. They got they got God. They got God. All right, so today we're going to talk about annualized budgets, aren't we? Albert, we are.

Albert Brier: 4:07

It's, it's something that you can't get away from if you're in capital project space. A lot, a lot, a lot of organizations set up their capital portfolios with an annualized like funding scheme and budget program. It's not my favorite

Nate Habermeyer, APR: 4:19

thing, and you can't. And it seems like every time our team is talking about budgets, like, this is a problem that nobody's solved. Yeah, yeah, that's right. Like, it's just an ongoing issue. Every client we've worked with, there's conversations about budgets, about optimizing, and it really boils down to schedule. It does Yeah, every project seems to blow their budget, you know, it's not a, you know, it's not a sexy topic, but it's definitely a topic that every client of ours and every capital project owner operator needs to think about. It is,

Albert Brier: 4:57

why is that? Yeah, I mean, the why is. A really, really, really big question, right? I mean, you know, or you hinted at something earlier, like everybody is facing this problem of, like, annualized, by the way, I think for a little bit of table setting, we should probably explain what we mean when we say an annualized budget, right? Yeah, let's do that, because it makes sense to think about, first off, most projects take multiple years. Okay, I say most, most large projects take multiple years. So the ones where you would need to develop, like a bottom up estimate and a, you know, big old schedule and do baselining and change control and all that stuff, most of them don't have a single year window necessarily, that most of them are multiple years. So you would need to divide your spending plan, if you want to put it that way somehow. So you may as well pick the year, right? You know also, the organizations that execute projects have some kind of yearly, you know, stewardship that they're required to do often by law, right? So like fiscal year reporting, either to shareholders or to the government or both, like, there's taxation stuff that comes into it, so you're definitely already carving dollars up into annual tranches. So it makes natural logical sense to take your project budgets and do the same thing.

Nate Habermeyer, APR: 6:14

When do you start with that process? Or where do you start with that process?

Albert Brier: 6:18

Well, that definitely that varies a lot from organization to organization, but first, let me just, let me just make clear what I'm not talking about. Okay, so what I'm not talking about is, if you have a big old project that's going to take three, 510, years to do, and you are reporting on it annually, but you've got the whole budget approved in advance. You've done life cycle planning. You're doing gate checks, getting the funding released in tranches as you approach and pass various gates in your stage gating plan. That's not what I'm talking about, because that is responsible, Stage Gate, front end loading, Project stewardship. What I am talking about is when the budgets and indeed the scope of execution for any given year are locked up behind annual fences, right? And that that happens a lot, especially for for portfolios of much smaller projects, hmm,

Nate Habermeyer, APR: 7:10

it's helpful to differentiate between what you're not talking about what we are going to talk about today. What's the problem like, if you're going to summarize the problem, yep, that we're going to talk about today or unpack a little bit, what is it?

Albert Brier: 7:23

So the problem is, you know, most capex projects don't achieve their goals. We've talked about that a lot on this show, most are behind on schedule, most run over on cost, and often those things are related to each other. So, you know, some research by McKinsey, by the way, we've probably given like five different sets of statistics for this, because it depends on which because it depends on which research you're looking at, but if you don't fence it by cost, like McKinsey did some research on this, and they found that projects typically take about 20% longer and are 80% over budget. 80 right now, 20% to me, feels a little bit light. I think you really Yes, because the really, really big projects typically will run 234, 500% behind schedule. And often the ones that don't have this massive schedule, schedule overage, they have a correspondingly large cost overage. So something like the Olympics, for example, like that's one of bent fleiberg favorite, whipping horses. Whipping horses.

Nate Habermeyer, APR: 8:21

It is that a thing? Yeah, whipping horse. Whipping post. Post, whipping post, it's, we're from Texas. You should know that. I really should. That feels like a very

Albert Brier: 8:29

text one who told the gun snake story. But anyway, yeah,

Nate Habermeyer, APR: 8:33

whipping post,

Albert Brier: 8:34

sure. It's one of Ben fly briefing,

Nate Habermeyer, APR: 8:36

boy, I don't know. I now you lost me whipping objects

Albert Brier: 8:39

and ask me, hello. Let's just look that famous movie anyway. Yeah. So he sums it up as mega projects are, quote, over budget, over time, over and over. And he's right, like, they, they tend to run massively behind and, like, one of his favorite examples of this is the Olympics. Right? Every time a city signs up for the Olympics like it's going to cost X and generate y in revenue, x is always too small and y is always too big every single time, without fail. But the Olympics don't change the date, because your city can't pull its crap together and get their project done right. So instead of compromising on schedule, which lots of projects will do the Olympics, projects tend to compromise on cost and quality, so they don't deliver quite what they were supposed to, and it costs way more than it is, and then it was than it was planned for. So those factors, the fact that most projects like their initial plan is unachievable, is one of the main underlying forces of why annualized portfolios just bust every time.

Nate Habermeyer, APR: 9:42

Yeah, we've, we've talked about schedules a lot, yeah, on this podcast and on our Insights page, on our website@dokanesh.com but yeah, this schedule and achievability is a has been an ongoing topic or an ongoing thread of conversation.

Albert Brier: 9:58

It is, and like. A lot of organizations that that use a mature or semi mature risk management paradigm will have some kind of cost contingency that they carry on all their projects. Often it's based on, like a flat percentage, like our projects at this gate carry 10% contingency or 5% contingency, and it's a rare organization that actually does the same thing for schedule, where, you know, if you have, like, saying 10% contingency is the same thing as saying, for every $100 I'm going to carry an extra 10, right? So that's, you know, basic percentile math. Why am I talking about that? Because the one time that I've seen schedule contingency managed in this way was with Exxon Mobil or for their upstream development projects, for every year on the schedule, they put in three months of contingency early doors. Okay, that's 25% contingency against schedule. And I don't think ExxonMobil is they're not exactly New Kids on the Block when it comes to building big things. So you know, they know that schedules tend to run behind but lots of other organizations, just don't

Nate Habermeyer, APR: 11:04

do that. Is there, like, if everybody's getting this wrong, maybe wrong is too strong of a word, like everyone is facing this problem, why isn't a fix

Albert Brier: 11:12

yet? Well, I mean, that's a, I mean, I think it boils down to two main answers. It's a really good question, right? Because everybody's, you know, taking all their small to medium sized projects and jamming them together into these capital portfolios that bust every single year, over and over again, forever, right? Maybe there's three answers. Let me start with the first one, which is one that we've already given. Like, project performance generally is bad, right? Like, as Project controls professionals, we collectively, meaning the entire universe full of us, have not been doing a great job of controlling cost and schedule on projects. So you should expect that any given project, whether it's behind an annual fence or not, is going to have the same kinds of projects that all capital projects do. It's gonna run over on schedule, which is gonna push at least some of its spend into unplanned fiscal years, or outer years, as

Nate Habermeyer, APR: 12:02

we call it. Why do you think that we don't do a good job? Well, I think

Albert Brier: 12:06

there's an under reliance on risk management, especially as it pertains to schedule. You know, I was talking earlier about that percentage bank style of contingency estimation, which often leaves schedule out entirely. That's that's really not a smart way of doing your contingency management, because you need to include at least some schedule contingency. Like, we have a client who's been doing work for a public sector. I don't want to give away the names here, but like, we have a public sector, we could tell you, but we'd have to kill you. Have to kill you. We don't want to do that. We love you too much. So we have this client that works for a public sector entity and has missed every single milestone that they've set out for themselves because they included no schedule contingency, and they failed to recognize that early plans by their contractors were going to be wildly optimistic. We're not going to take preventable and predictable delays into consideration things like resource constraints and access to buildings, which is really difficult anywhere but especially in the public sector. So, you know, there's just lots and lots of factors that go into that, but, like, poor schedule risk management is a big, big chunk of it. So the second reason is, yeah, it actually makes perfect sense to carve funding up annually, right? You know, I mentioned earlier, there's lots of different reasons why projects organizations need to think about their cash flow in annual terms, right? Yeah, so it's and it's tempting to mate that annualized budget up with a specific scope that you're going to execute in that year. You probably have stakeholders that want to know that, right? Like, they want to know what are they going to get? Like, if you're spending $10 billion next year, what are they going to get for that? Like, that's a perfectly reasonable thing to want, you know, so locking everything up behind an annualized budget is the wrong way to address that very reasonable concern, but it is one of the most common ways.

Nate Habermeyer, APR: 14:01

All right, so are you saying that the results of the overall project or versus the results of you know, the output of that one year is a better metric for how well that money is being spent? Am I

Albert Brier: 14:15

You're bang on the results of the overall project are exactly what organizations and their stakeholders should be looking at right? But we don't well. We do and we don't right when we get close. So these kinds of projects like part of the reason why they have, by the way, annualized projects are actually worse than average at delivering on their their stated objectives. And this is part of the reason why the the GAO like the US Government Accountability Office, did a whole bunch of research on this in the 90s, and found that this kind of budget, like fencing, not only does it increase the likelihood that projects will fail, it also, like encourages scope creep, right? Because a lot of annualized budgets. Take what's known as a use it or lose it approach. So a use it or lose it budget means that, like, if you budgeted that $10 billion and you only spent nine, and it's September, you know, and like, your fiscal year is over in a month, then you need to find a way to spend, or at least, tough luck kid, a billion dollar. Yeah, exactly. Or else, next year your budget is 9 billion. You know, that's the professional terminology. Yeah. Tough luck kids. Sorry, Junior, yes, sorry, we're taking your allowance down to $9 billion

Nate Habermeyer, APR: 15:26

there's no way that I would never spend that much

Albert Brier: 15:29

money. Oh Nate, I think if you and I put our heads together, we can find a way.

Nate Habermeyer, APR: 15:33

Anyway, yes, sorry, let's cut that out.

Albert Brier: 15:36

No, I don't think so. I don't think I am going to cut that out. But anyway, so the the I know right, there it is, there it is.

Nate Habermeyer, APR: 15:46

Okay, so let's get back to it. So we talked about number two was, was that? But now you're talking about use it or lose it?

Albert Brier: 15:52

I think, yeah, the use it or lose it thing. I mean, it encourages scope creep, because when you get to that, that cliff right where you realize that you've underspent and you have to find a way to commit the rest of your your annualized budget, a lot of low quality purchases will sneak past the goalie, right? So projects are typically approved on when they're on a total life cycle basis. They're approved based on their measurable results, right? Like, I'm building my new factory because it's going to sell lots more widgets than the old one, and I'll recoup my losses in three years, and they won't be losses anymore. There'll be profits, right, right? That's how projects are supposed to be measured. So when you put an annual fence around it, then suddenly the metric isn't, did you spend it on something that's going to achieve high ROI? It's, did you spend it at all, right, right.

Nate Habermeyer, APR: 16:36

So, and most, most of most budgets are on that clip like that. That rotation

Albert Brier: 16:42

in terms of total capital dollars spent, I don't know whether most budgets are, well,

Nate Habermeyer, APR: 16:46

public sector. I mean, every lot of public sector is always annualized.

Albert Brier: 16:51

It is, but even they almost even, even they have some kind of total lifecycle planning angle that they take when they're doing the really, really big stuff. But, like, the danger of the annualized stuff is that, yeah, it's probably, it might even be true that the most dollars get spent not on an annualized basis, but most projects probably are done that way. You know, because if you think about it, a lot of really small projects are happening all around you all the time, right? And a large percentage of them are probably drawing from a municipal budget or provincial or state budget, or government budget of some kind that is, in fact, annualized, right? It's driven by tax revenue. It has to be reported on on a fiscal year basis. So all this money has to get spent, and like, if you've ever noticed a surge of construction work in a season when it really doesn't seem to make sense to do that, it's because they're trying to spend their use it or lose it annual budget. Most likely

Nate Habermeyer, APR: 17:43

that kind of feels like the whole renaming of the Department of Defense to the Department of War is a use it or lose it. Well, sorry, when you were going through it, I all I could think about was that, well, that

Albert Brier: 17:57

is going to cost a lot of money. It is no one involved.

Nate Habermeyer, APR: 18:01

Very expensive.

Albert Brier: 18:02

Is very expensive. And

Nate Habermeyer, APR: 18:04

anyways, that that was what you put in my

Albert Brier: 18:07

head. Yeah. Well, I'm glad I could get you thinking about the Trump administration. That's Department of War. Exactly. It's the service I provide. But no, this actually brings me cleanly to that third thing I was going to talk about, right? Like that, use it or lose it, mentality of, like, sneaking in low quality things. Like, I'm not saying that all rebrands are bad, Nate, because I know you've done some great ones, but you know they're not necessarily the highest ROI thing you could spend your project's budget on. It really depends on what your initial you know what I mean, like, you're supposed to plan around what you spend. You shouldn't just be a rush to the end, but a lot of projects organizations will look at their year end results in retrospect and think, Oh, we did a great job. We spent 98% of our budget, right, like we did it. You know, pat on the back. We've had sales calls like, you know, you me and our mutual friend armor, with new prospective clients who tell us that their capex performance is great that every year they meet their spending targets, right? And then we say, Oh, well, that's really amazing. Like, how are you? How are you doing that, you know? And what they eventually will say is, like, well, we massively changed the scope.

Nate Habermeyer, APR: 19:13

Yes, oh, yeah, yeah, I bet you hate your targets. I'm a marketing guy, and I just, I hear that, I go, Yeah, that that means

Albert Brier: 19:19

nothing Exactly, yeah, it's not possible that you know all of these because, like, on the one hand, they took a call from us, right? Like we do process improvement and capital project controls. So why'd you take call? Sauce? You're so good, you know, there's something wrong here, but that is the third reason, right? Like a lot, and our clients do the same thing. They look retrospectively at last year and think, hey, we hit all of our spending targets. We must be doing something right. Well, you break it down on a per project basis, it doesn't look so pretty.

Nate Habermeyer, APR: 19:49

You've talked a little bit about the symptoms of of this, of the annualized budget, and the problems that occur. Well, like, what are we? What are we? What. Proposing, what do we want to how do we want to change things? Well, not a

Albert Brier: 20:04

bad question. It's not no. I mean,

Nate Habermeyer, APR: 20:06

here's the I debated asking, no, no. Seems so large. It's a

Albert Brier: 20:10

big question. It's not a bad question, but it is a big question. And the truth is that there are better ways of doing it, and none of them are even all that new, right? Like, it's not like, I'm gonna sit here and tell you that we need to use AI to do we don't, okay. We have lots of different ways to do this. The one that I personally it's called Excel. That's right. Just learn how to use Excel. Move what's Yeah, you don't know how to V look up, whatever. Yeah. Anyway, no, unfortunately, improved use of Excel is merely how you will do it, not what you will do. Yes, but yeah. So my personal favorite answer to this question of, how do we stop doing this? The wrong way is to basically stop assigning scope to your annualized budget. Right, right? Like, okay, you know all those organizations I was talking about earlier, my reason three, in retrospect, we look really good because we spent all of the money that we plan to Well, cool, then maybe that should be your goal. Actually, is to spend a certain amount of money, right? And instead of aligning it with specific projects. For example, you might have a refinery with an annualized D bottlenecking program. And instead of saying, Well, this year we're going to do the D Coker expansion right, instead you say, Well, this year we're allocating this much money to the D bottlenecking program.

Nate Habermeyer, APR: 21:32

Sounds it's a mindset shift. It's not just that a little bit.

Albert Brier: 21:36

It's not just that because let's, let's take that decoder expansion project. Yeah, please. Okay, so do you know what D Coker is? Nope, okay, so petroleum

Nate Habermeyer, APR: 21:45

coke. Have you ever driven? I was trying to imagine what it is, and I was like, all I could see was, I don't know some, some kind of smelting operation.

Albert Brier: 21:54

You're not super far off, like, because petroleum coke is used in smelting, but as an input, not as an output. Great. So petroleum coke is, I'm not a chemical engineer, nor am I petroleum engineer. So I'll tell it to you in layman's terms. It's the partically black stuff that you pull out of oil to make it refine. Okay? So if you've ever driven by a refinery, you see a big old tower of jet black stuff like that's petroleum coke. And in order to do certain kinds of to produce certain kinds of outputs from your petroleum, you have to get all that stuff out of there, right? It and sulfur are two of the main things we have to pull out of crude oil to make it usable. And by the way, the sulfur is right next to the giant black pile is the giant yellow pile, right, right? So anyway, if you want to produce more usable products from your crude oil, then you pull more coke out faster and you can do more with the crude that you have. Okay, okay, so a de Coker expansion is a good way to de bottleneck your facility and make more, you know, light olefins or gasoline or diesel or whatever. Yeah. So if you say I'm going to do that, that's a great idea. You should do that. And this coming year you say I'm going to do the decoker expansion. Well, there's all kinds of things that can go wrong with the decoker expansion, right? Perhaps you have a piece of dependent work that gets delayed and you can no longer do it during the season when it would be most efficient to perhaps something else crops up that would be even better ROI and you could execute even faster. Perhaps the relevant subject matter experts have to, they get furloughed, or they have to take a sabbatical, or, you know, they have a death in the family, or, you know, all kinds of things that are like as soon as you start getting specific, there are resource constraints and weather constraints and timing constraints and all those things, all these risks that can crop up on your project and stop you from doing the decoker expansion, but what they don't stop you from doing is other projects in the de bottlenecking program. Okay, so this is called Lean and continuous budgeting. Is the idea that you allocate things to a program of related works instead of to a specific project. And you say, I want to execute elements from that program to the tune of nine or$10 billion this year.

Nate Habermeyer, APR: 24:10

But it sounds like you're just given free reign to spend the money on x, but you're not really defining what you're gonna do? Well, a,

Albert Brier: 24:21

yes, that's exactly right. I mean, now it's, it's, it's, it's a little more limited than you're making it sound, which, which brings me to point B, the key, like, the secret sauce here is quarterly planning or or monthly even. Like, instead of having a big end of year, let's do the budget for next year. Let's figure out all the projects we're going projects we're going to do. We're going to carve it all up. We're going to put them on a Gantt chart. We're going to cash flow it out. We're going to spend $10 billion decoder expansion goes right there on the list, right? Like that's a really tempting way to do it, if you go with a lean and continuous budgeting approach, then instead of that, you take the decoder expansion off the board, put. A big old line that says, you know, capacity enhancement or de bottlenecking projects. And then in your first planning meeting, you talk about all of the the things that could consume that budget and how much they could consume and under what and then you do that again next month or next quarter, and you keep doing it until you get closer to execution. And the whole point here is to spend as much time in planning as you reasonably can, so that when you actually start executing them, you're ready to rock and roll. So if you are meeting these annual budgets on a quarterly basis, and you're like, coming together as a group, like, the same way you would do with your annualized, you know, Budget Planning Committee, bring those same people together quarterly and review more time limited data, right? Like give yourself a time horizon, set your fence even tighter, and plan more precisely within that next upcoming quarter time. So you're doing rolling. That's the continuous part of the lean, and continuous budgeting lean means you're only taking little bitty bites of it, and continuous means you're doing that on a much more regular, recurrent basis than you would under a typical annualized program. So that's my answer to your

Nate Habermeyer, APR: 26:09

question. And is that like a common practice, or is that uncommon? Are we are you proposing like you did say at the beginning, like these are not some of these are not new, but is this something we're proposing that's not

Albert Brier: 26:21

common? Well, this is the kind of thing that you would typically find in the world where Lean is already very much how they do things, right? Like in manufacturing, for example, a lot of manufacturing projects, like every factory in the world, needs a gigantic pile of projects done inside of it each year, right? And a lot of them use this style of program or portfolio level funding that they then carve up, you know, monthly or quarterly or whatever, as they go. So it's in heavy use there. But this is one of the things that I found the least research basis for, right? I mean, I could find a lot of examples of consultants like you and me saying that it's a good idea, right? And like citing some hypothetical statistics, but you don't see a lot of large organizations talking about how they did such a great job with their annualized budget because they adopted a lean, you know, budgeting paradigm, because they haven't right. So it's hard to find example cases of it, and I wish more companies would

Nate Habermeyer, APR: 27:18

try it. Hmm, yeah, it seems like a reasonable proposal. So, how do I, like, what do I if I'm in a PMO and I'm sort of planning, you know, we're stuck on the whole like, blowing budget cycle, let's call it, yeah, like, where am I starting? How do I how do you start to turn

Albert Brier: 27:45

the ship? Well, those big annual budgeting meetings I was talking about are one answer to that question. There there's a there should be one. That should be several, right? And even if there is one, there's there's other things. There's other levers we can pull to make those meetings more effective, but it has to start there, right? Like, personally, we have a client who falls into this trap every single year with their environmental remediation projects, and I want to tell them that it's okay if they just don't assign scope to their projects anymore. If they just show up to the meeting and say, we know how much we're going to spend, we don't know what we're going to spend it on. Let's plan the next quarter, and then we'll come back in a quarter and do it again. That's the only difference that they have to do. That's it, right? It's a very, very small change, but it requires administrative buy in, right? Like whoever the boss's boss's boss's boss's boss who goes and actually talks to the government, or whoever the ultimate client is about what you guys got done in any given year and what you're planning to do next year. That person has to have, you know, to be crass a set right? They have to be willing to go talk to

Nate Habermeyer, APR: 28:51

it is bold right to propose that, yeah, like, how are you going to talk to the board about that? They're going to say, well, what are we getting? Yeah, what's happening

Albert Brier: 28:59

now? What's funny is, a lot of organizations who would be a little bit concerned about taking the I don't know what I'm going to spend your $10 billion on message to their bosses, which, again, understandable, but a lot of those same organizations will happily adopt agile practices like scum Scrum, rather for their IT projects. Okay? One of the foundational principles of Scrum is that you can't predict at the beginning of a project what your scope is, right? So, applying Agile principles to larger portfolios and different like kinds of capital projects that don't typically use agile methodologies, like, I'm not saying that every capital project should use Scrum, because they shouldn't, frankly, but taking that same mindset of, I know what you're going to get at the end of the end of the year, it's this much worth of value, right? Like we're going to take all of these money that you've given us and we're going to spend it on something valuable. I guarantee it. In fact, we're going to do a better job this year than we did last year of delivering value for you, and the way we're going to do that is by doing it as we go. Know, instead of, instead of lying to you about we'll do in the next 12 months, we'll tell you the truth about what we'll do in the next three months, and then we'll do it again three months later. That's a bold statement. It is. Yeah, feels good

Nate Habermeyer, APR: 30:09

to me, though. I'm just trying to think if I were to tell my daughter that she could just spec that would never work in personal life. But yeah, giant projects worth $10 billion sounds like it would work. But good luck telling that constituents. Let's say, if you're, you know, on the political side, if you're, you know, kind of creating the budget that that gives the money to these projects, there's a lot of buy in that has to happen. That's right, this becomes, like, a lot of stakeholder engagement.

Albert Brier: 30:37

It does, yeah. And like, you know, if you're a project manager, your job is not to manage the technical elements of your project. Your job is to manage people, right? You are a communications and interface manager, and you probably have technical people who will do the really nitty gritty stuff for you, right? So project managers are already stakeholder communications and interface managers. They just have to kick that sensibility into overdrive in order to take this paradigm and make it work. But there's a fair case to be made that it's not going to fit with every organization, right? But there probably will be some where the executives are, like, not good enough. Like, we actually do need to know what you're going to do in the next 12 months, and I have an answer for that one too. Actually, what is the answer? Well, I'm so glad you asked we're playing T ball here. Yeah, exactly. But basically, you know, I was talking earlier about under utilization of schedule risk management practices is a big root cause here. Yeah. So use them. I mean, instead of saying, Well, we're going to do the decoker expansion in the first six months, and, you know, some other thing in the next six months actually subject those to an early doors risk assessment to tell you, Okay, what is that six months, really? And maybe it's parametric. Maybe you have a bunch of other projects, you know, you can use reference class forecasting to say, like, well, all of our other expansion projects in this size class went over by 30% on their schedule. So it's not six months, it's nine, right? So you know, you don't plan for that spend to happen on the shortest possible timeline. You plan for it to happen on the most likely possible timeline, right? Because what happens, let's say I want to spend $10 per month for the rest of the for, for, like, the next calendar year. How much? How much money am I planning to spend? 120 That's correct. Well done.

Nate Habermeyer, APR: 32:31

Okay, yeah. It's like, wait a second, is there? Is there a trick? Yeah, he was

Albert Brier: 32:35

not expecting to do math today.

Nate Habermeyer, APR: 32:38

I passed. You did.

Albert Brier: 32:39

Now what happens if

Nate Habermeyer, APR: 32:40

my son would call me a dummy or something, or I'd you a simple

Albert Brier: 32:46

math I don't know you got there, though. You got the right answer. Yeah, a ding dong. So what happened? Okay, if I spend,

Nate Habermeyer, APR: 32:52

I passed you did, yeah, let's go back. What point are you making? Here's the

Albert Brier: 32:55

point. What happens if I spend $8 per month instead? How much money have I spent?

Nate Habermeyer, APR: 32:59

Then, ooh, you want me to do it for you six bucks.

Albert Brier: 33:03

It's 96 bucks. Yeah, you got it? Yeah? Okay, so 96 minus 120 is a shortfall of$24 that's lunch. It's something, right? It is. So here's the difference between taking a risk impacted view of your schedule versus a non risk impacted view. All right, okay, do it, if you are in this exact same scenario, right? 10 bucks per per month, if I'm planning to do that, and I have a specific set of scopes attached to each of that, you know, $10 every single month. And all those scopes predictably run behind by this amount, where I'm only spending eight per month. Instead, right at the end of the year, I have a shortfall of $24 and, you know, that's not a whole lot of money, but multiply that by a million, and you started, you're talking about the actual kinds of money that we're talking about for these kinds of capital programs. And you don't want a $24 million shortfall at the end of the year, right? That's like a big chunk of your year. So you sure, you take that 24 and instead of saying, I'm definitely gonna spend it on these things and then failing, you either have that, as you know, side cash for those little tap on projects that you might bring in during the year, or you simply plan more projects, right? So like, let's say that that $120 was set aside for four projects, right? 30 bucks each. $24 will buy you basically a whole other project. So instead of taking four projects and running them on the most aggressive possible timeline, you take five projects and run them on a risk adjusted timeline. So you still plan to spend the full amount of money, you just smear it out over a longer period of time.

Nate Habermeyer, APR: 34:36

Because smear it out, yeah, it just sounds like you're being much more efficient with execution, and therefore, or ergo, you have another project that you can throw in there.

Albert Brier: 34:48

Yeah, exactly. And that, by the way, goes down much more smoothly with management than I don't know what we're going to spend your money on. If you say, not only am I going to spend the money on these four things, I'm going to get you a 50. Thing, right? I'm like, Oh, wow, amazing. It's like, the fact that some of those projects are going to leak into next year is was going to happen anyway, but now you can execute on more things at once.

Nate Habermeyer, APR: 35:10

So just for the sake of an example, I'm going into a meeting with my boss, and I'm going to propose this 80, $96 so $10 a month, $8 like, what am I taking into that meeting? How am I preparing for that conversation

Albert Brier: 35:27

that will again depend on the organization, but you know, for the ones that need you to tie? Okay, so I guess we can break our executive teams into two here, right? Sure ones that are comfortable with the more agile, lean, continuous budgeting approach, where you can't be sure about the year, and the other ones where you need to be sure, right? I think the first ones we know what you bring in, you bring in a quarterly plan, and then you bring in a plan to make more plans, right? And if you have, like, if you have the good fortune of having a planning manager as your boss, then they'll probably buy into that, right? Yeah. But if instead, you know, yours got a business degree, then you know, what was the you know, you're gonna have to actually explain yourself. And that brings me to group two. Okay? For that group, you do have to say which projects they are, right? And I take the approach of, like, if you have that initial 12 month budget that you put together, like the, you know, the $10 per month for 12 months, 120 bucks total. And you knew how that was carved up in your brain when you set it out there. I would suggest bringing that and then overlaying on top of it the this is what the risk impacted schedule means, all right, so in previous years we've had kind of looking at it side by side Exactly. So you can say, Okay, well, in previous years, we've had this amount of overrun, so we can count on 30% or so of our of our funding actually getting spent next year, right? Not this year, but next year, because of predictable and unpredictable delays. But it racks up to about 30% using that extra 30% starting in May or June or whenever we can kick off a fifth project and get it started early, so that we're using the cash that's locked up by the other four projects operating more slowly to start a fifth project.

Nate Habermeyer, APR: 37:09

It sounds like just make it a really good business

Albert Brier: 37:11

case. It is making a good business case. That's exactly what it is. I mean,

Nate Habermeyer, APR: 37:14

you can't argue kill them with numbers or, you know, essentially you can't argue with that. All right, so what's one piece of advice that you would give, you know, our audience that are thinking about, you know, improving the annualized budget process,

Albert Brier: 37:29

yeah? Well, as we hinted at over the course of this recording, it's hard, right? It's it's hard for lots of good reasons and some bad. So I think the easiest thing to do is pick the low hanging fruit and go after the bad reasons, right? Get yourself acquainted with your own organization's historical data. Right? Be able to answer the question of how far behind you typically run on these annualized programs, and how much money is being left on the table each year. You know to be picked up by these low quality buys or unplanned things that you shouldn't be spent. And this is the other thing we didn't talk about during the episode, by the way, like when you push money out of the current year into outer years, it's not like the money disappears from the projects. You're still going to have to spend it, you just no longer have any visibility into it, right? That's another thing. By the way, the GAO found, they did a big analysis of like naval yards that were building ships for the Navy, and they found that rather than, you know, the annualized budgets controlling spending, they're actually causing spending to go wildly out of control. Because no project, no one ship that was being built, could accurately predict how much that ship was going to cost in total. So there was a time in the 90s, I was living in the US at the time. I don't know if you were, but like, in the 90s, like, it made the news a lot about how much all these all the time. I mean, oh, yeah. Like, and there was a specific class of ships, like the the camera, what they're called, like, the missile destroyers.

Nate Habermeyer, APR: 38:56

We call them skimmers. My dad, because my dad was a Submariner, he talked about skimmers. Like, these are service ships. And like they were, they were basically getting finished, and they were already obsolete by the time that they were getting

Albert Brier: 39:09

Yeah, because they were taking so long, and the costs were just absolutely out of control. And so, yeah, by the mid 90s, this was, like, a massive political issue, and when the GAO did its analysis, they were like, the way that things are set up is causing it's like forcing project managers to misreport numbers right and to end so that's a really easy low hanging fruit is to just go find out what the real data says, And the real data lives in the past, not in the future. So you go figure out what your historical data says about your your history of doing these kinds of projects on time and on budget, you're gonna find that it's not great, right? But put a number to it earlier. I used an example of 30% like on average, we're 30% behind. You need to know what your number is, so that. And this brings me to thing too, so that when you go have that conversation with executives and figure out which of those two branches you're in, right? Right? Like, are your ex are your executives going to be open to the idea of, like, a continuous planning or are they not right? Do they need to see a scope based program you can start preparing for that conversation if you know how far behind you typically are. So I think that's the first thing to do. Is just get your arms around your historical data.

Nate Habermeyer, APR: 40:19

All right. Excellent advice. All right. Well, thanks, Albert, yeah. Thank you. Nate. It was good one. All right, thanks, everybody. Talk to you later.

Albert Brier: 40:31

Hey everybody. It's Albert here. Thanks for tuning in to the risky planner podcast. We hope today's conversation was informative and, above all else, inspires you to excellence in what you do. If you liked today's episode, don't forget to rate, subscribe and leave a review. It helps us reach more listeners just like you. I'd also like to thank Thompson Igbo Igbo, for letting us use his excellent music on our show. If you like what you hear, check him out@igbomuzik.com that's E, G, B, O, muzik.com talk at you later. You

Nate Habermeyer, APR: 41:09

Oh, was that a cue?

Albert Brier: 41:10

I mean, we're having a conversation. Nate, I don't know.

Nate Habermeyer, APR: 41:13

Yeah, I thought you tell me another story about guns and snakes.