Microsoft has received kudos for integrating portfolio management features into Project Server 2010, its enterprise project management tool. What's lesser known is that along with that integration, the company chose to drop the cost management functionality that was an important part of its previous portfolio management product, Portfolio Server.

To address that feature gap, EPK Group recently launched EPK Cost, a new product that uses technology from its full suite to provide cost management that integrates with the project management capabilities of both Project Server 2007 and 2010. According to company co-founder Rich Murphy, EPK Cost requires very little time for setup: "It takes about 20 minutes. They have to do some configuration. But we help them by giving them a starter kit, which breaks things down. Everything you do to set it up is done within the user interface. So it's not terribly difficult. It's not like it's going to take you three months."

Once the program is set up, everything the user needs to see is viewable within Project Web Application in Project Server 2010 or in Project Server 2007. The new features show up in Project Server 2010 in the user interface ribbon. In Project Server 2007, a new menu appears.

In this interview, Murphy explains the basics of cost management and shares what he believes are the keys to success in project management. (We'll give you a hint: Success requires taking into account time-phasing of project costs and then being able to integrate the data behind costs and schedules to continually reforecast for better business decision-making.)

Can you explain the concept of cost management in plain English?

Rich Murphy: When it comes to cost management you have to recognize two givens. One, you have to consider the time phasing of costs. Second, you have to realize that cost at some level, meaning simply a breakdown perhaps by labor or resource types -- I need internal and contractor labor and hardware and software. Projects get approved way before you have any detailed project schedules. Those are the two critical elements: Data has to be time-phased; and you may have some breakdown of costs of a project long before you have a detailed task schedule.

Microsoft sales people have told us that cost management is only important to about 40 to 60 percent of their customers. That number, frankly, surprised us. How could cost management not be important to 100 percent? So what another partner explained to us was that it is important to 100 percent of customers. It's just that the ability to integrate the cost of a project with Microsoft Project is only important to 60 percent of them. There's no real way to do that. The rest just live with the fact that they're doing budgets in Excel and project schedules in Project.

What we're trying to do is integrate the two. We're saying you can have a spreadsheet to do high level costing. And you can integrate that with Project. Because let's face it, projects do slip. If they slip, it would be nice to know what the impact is on the spend rate.

Aren't cost functions handled by Portfolio Server currently, which is being integrated into Project Server 2010?

Murphy: What many people haven't realized is that although Portfolio Server 2007 functionality has been moved over in a fairly elegant way into Project Server 2010, what's been moved over is sort of an enhanced version of the project initiation and workflow process. But the cost management functions in Project Server 2007 aren't there anymore.

What exactly are the cost management functions in Portfolio Server 2007?

Murphy: It has the capability of preparing a preliminary budget for a project, broken down by labor, material, and overhead. It also has the capability of moving and displaying other types of cost -- like the actual costs on a project that might be entered manually or brought from some accounting system. It isn't perfect. One of the deficiencies is that it can only total up the costs you've spent to date. It can't break down your budget by [period].

It was far from perfect. But even that's gone. Those capabilities in Portfolio Server related to cost management -- they haven't been moved over to Project Server.

At the same time, our company, EPK decided we were going to do something to fill that gap. We've developed EPK Cost, software that's going to address cost management functionality -- whether somebody has Project 2007 or 2010. Customers on either 2007 or 2010 can use it -- with zero migration. We also make it work with Project Standard and Project Professional. It's just not something we're promoting very heavily. Desktop users have the same capabilities as users of Project Server 2007 and 2010. The only people we're leaving out are those using Project Server 2003. We want to encourage those people to move to 2007 in some fashion, since 2003 isn't maintained by Microsoft any more.

We're introducing this at $4,995. That's it. No number of users or client access licenses.

It's a great opportunity for Microsoft consulting partners, since customers will want to configure it for their cost types and cost categories. We offer a free copy of EPK Cost to Microsoft partners. That comes with a server API, a software development kit, so partners can bring data over from other applications, such as SAP, that their customers are using.

Why replace Excel with this? What are the advantages?

Murphy: To gain that integration with Project, which can really make a difference to the business. As a simple example, say I start my project. I have a budget of $100,000 spread over a certain period. The labor cost is going to be $45,000 over this number of months. A certain amount of that is for employees, a certain amount for contractors. Then I have material costs and overhead and contingency. Or maybe some costs for something down the line.

So I have this spreadsheet with that recorded. I appoint a project manager. That PM goes in and does the detailed planning. I have no way to figure out if this detailed plan is still consistent with the budget I prepared. Even if the PM takes advantage of the project resource costing features, he's not accounting for software, materials, contingency, for the time phasing.

As the project slips, I have no way to see how this slippage is affecting my cash flow. I've got two different systems. I have Excel with the initial budget. And I have Project, which, if I've even used the resource features, only works out resource costs. Even if it comes up with resource costs, I still have to sit there and look at a piece of paper -- something in Project and something in Excel.

Or suppose I did this budget on a fiscal month basis -- a four-week, four-week, five-week basis? Project doesn't handle that. Excel does. Project has no concept of fiscal calendars. It has a concept of calendar months, but it can't assume that the year ends on Feb 24, like it did this year for anyone using a government fiscal accounting system.

Also, another very big issue: Suppose the project does slip, and I want to reforecast my budget? Now somebody manually has to take data in Project and go back and update an Excel spreadsheet. There's no integration.

Here's another point, which probably is the most significant thing. According to one of the industry analysts at Giga [Info Group, now part of Forrester Research Group], of the three people involved in a project, the resource doing work, the resource's boss, and the project manager, which one first discovers an overload condition? Ninety-five percent of the time it's the resource.

Unfortunately, the resource finds that problem on average two to three weeks after the overload exists. I'm on a project, and I discover that I'm scheduled to be working 190 hours this week. When were those overloads put in place? Four to five months earlier -- but nobody knew. It was back in December some time that some PM scheduled me for work that I was supposed to be doing in February, that now has slipped into the middle of April. My boss didn't know. The PM didn't know. I didn't know. That's the main reason why projects in industries like pharma and IT get into trouble. They get in trouble because resource overloads are put in place. It's not just cost, but staff hours.

With our product, once you publish that schedule, you're going to see that stuff. Each of the managers -- the project managers and line manager who'd like to have Rich as a certain percent of his time -- is going to see there's a problem in the future. They'll see it in a red condition. They'll say, oh, there's a problem. The choices are to address problem or stick your head in the sand and pretend it's going to go away, which it never will.

Project is excellent for bottoms-up planning -- whether it's the schedules, resources, or the costing. But there's no way to have it be integrated with the high-level top down planning that was done when the project was approved -- the forecasting that companies do on a monthly or quarterly basis. You need an integrated solution that brings together the high-level planning and the bottoms-up constant replanning that's done inside Project.

We think that's the key to successfully managing the costs and resources in an organization. The fact that your project slips -- that's important to you as a PM. But to the bosses of the resources and to executives who approved the project, assuming the costs were going to be this much over this period of time, they have to know what every slippage in the project means to them. Without that information, nobody made their budget and their schedule, but they still spent all the money.

Failures are caused by the fact that people don't have the information and don't know about things until it's too late to do anything about them. That's really the problem we're trying to solve.

Learn more about EPK Group here.

Also, MPUG members can listen to an on-demand recording of Rich Murphy's webinar, "Resource Planning: A 'Tops-Down' and 'Bottoms Up' Approach."