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Procurement Management in Project Management - Cash and the Law of Diminishing Returns

October 19, 2008 | Author: PM Hut | Filed under: Procurement Management, Procurement Plannning

Procurement Management in Project Management - Cash and the Law of Diminishing Returns (#3 in the series Procurement Management in Project Management)
By Joseph Phillips

One of my favorite economic laws is the Law of Diminishing Returns. It’s basic stuff at first glance, but can really haunt a project manager if he’s not careful. I know you’re familiar with the Law of Diminishing Returns, but some aren’t, so let’s help them out.

Imagine that you have a corn field and you know that you can get 100 trucks of corn out of the field. That’s the most corn you’ll ever get from the field. You also know that if you hire 10 guys to harvest the corn for you, they’ll be done in 2 days. So you reason that if you hire 20 guys you’ll be done in 1 day. So this must mean that if you hire 40 workers, all the corn will be harvested in half a day, right? Maybe, but if you continue to add workers to the field, a few things will happen:

  • Your yield—100 trucks of corn—remains the same no matter how quickly you harvest the corn.
  • Your profit will decline because you have to pay all those workers to harvest the corn for you. At some point, you may even be upside down on profitability because of the expense of labor.
  • The workers will become counterproductive because they’ll start getting into each other’s way.

So how does all this corn relate to an IT project?

The obvious answer is that you can’t exponentially add labor to get a project done faster. And just because you add labor doesn’t mean that the project will get done faster. (Have you ever had two programmers, two systems engineers, or even two Finnish-speaking, spaghetti-cooking, COBOL-programming CCIEs argue over how a task should be completed? The argument could go on for years before the work actually gets started.)

But the Law of Diminishing Returns also applies to the technology that you purchase. Have you ever bought an application that was so rich with features that the cost and time of learning the application was more than the returns from using the application? Or have you ever installed a massive powerhouse print server where many of the features of the OS go ignored? Or maxed out the RAM on a laptop that’s only used for PowerPoint presentations and solitaire?

When it comes to IT hardware, as with labor, project managers should procure only what’s needed—not the max that the budget will allow.

Joseph Phillips is the author of five books on project management and is a, PMI Project Management Professional, a CompTIA certified Project Professional, and a Certified Technical Trainer. For more information about Project Management Training, please visit Project Seminars.

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This entry was posted on Sunday, October 19th, 2008 and is filed under Procurement Management, Procurement Plannning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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