Project Cost Inflation
The cost of everything is going up. What we could buy at a certain cost yesterday, we can no longer buy at the same cost today. But more accurately, the value of our money is simply going down as a result of worldwide so-called cost inflation. Obviously, this has a serious impact on project costs, especially for longer-term projects. Inflation should be taken into account when estimating future costs, as well as evaluating project cost control performance during delivery.
In an email Jenn Doherty sent me, she offers five tips for talking to clients about price increases. Here it is.
With the annual inflation rate close to a 40-year high, surging prices for everything from food to industrial supplies have become a way of life. But that doesn't make it any easier for project managers to tell their customers or clients that their estimated costs for a project have gone up.
One reason is that as with any difficult conversation, those responsible for selling are often reluctant to be seen as anything but helpful and on the client's side. And many are not comfortable talking about costs in the first place, whether actual or estimated. Now more than ever, though, it's crucial to have that conversation and to nail it so your clients will stay and continue to support your projects.
For example, in a book called: Agile and Resilient Sales Leadership for the New Normal, authors Michelle Richardson and Russ Sharer, offer these 5 pointers for how to convey changed prices (i.e. costs to a project):
- Be transparent: Present the change honestly and clearly, and explain the underlying why.
- Focus on value: Explain how your product or solution continues to add value to your client's business.
- Plan the conversion: Know what you're going to say and anticipate questions.
- Express empathy: Demonstrating that you understand how your client feels and acknowledge their frustrations.
- Conclude on an actionable note: Offer a plan wherever possible or a roadmap for how the change impacts your client's plan.
Importantly, they add:
Don't delay the conversation.
Bad news is like fish it doesn't get better with age.
That sounds to me like all good advice.
1. Jenn Doherty's email is email@example.com.
2. At the time of writing, the inflation rate in Canada is running at around 7% per annum.