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A Bonus Structure for Your Project Managers

When one as a Project Director or PMO Director needs to define a working Project Managers bonus structure, that is a commission structure for your Project Managers, he/she needs to consider many aspects. These include short term aspects, but more importantly, long term aspects.

Are commission structures based around budget control the righ option?. Definetely not.

We all know that we live in a world based on budget and cost control.

Of course a Project Manager (PM) manages costs, but the real purpose of a project is to deliver a Product.

Quality is the only thing that remains when the project is finished. Also, Customer Satisfaction will be based only on Quality Products.

So that, in my opinion your bonus structure should be based on passing Acceptance Criteria in the first delivery (on Scope). This means: no reworks (higher probability to be on Budget), short-term Customer Satisfaction (on Time), and long-term quality deliverables (on Quality).

Reaching Acceptance Criteria (On Scope)

Reaching Acceptance Criteria means to meet expectations. Expectations are built in the earlier stages of a project and are related to Stakeholder Management. So, a good Project Manager needs to clearly identify the Key Stakeholders that will be involved in the final Acceptance step in the closing phase of his/her project, and drive it from the start always having them in mind. Any time, any decision needs to be made, just remember who are the Key Stakeholders involved in final Acceptance.

But this is not enough. A Project Manager should include an annex to the Project Scope Statement document with the Requierements and which will be the Acceptance Criteria for each of the them. That is, by writing a detailed Scope Management Plan you will clarify without any doubt what is included and what is not included in each of the project deliverables.

Remember that a Project Manager is an Integrator role. He/she must be over all the subject groups defined within ISO 21500. That is, Integration Management needs to always be driven with the Acceptance Criteria in mind, where of course Scope is one of the most important factors.

Managing Scope to deliver what is really required, means involving users in project design. For this task, Agile tools and techniques will be very useful. But always remember closing a very clear Scope Document in the planning phase, because this will make reaching the final project Acceptance easier later on.

Long-Term Satisfaction (On Quality)

As it is been said, Requirements need to be gathered along with their Quality standards. These quality standards will drive the Acceptance phase. But, the true customer satisfaction will come in the long-term, with proven Quality Products. Proven Quality Products is what make a company survive. Each of our project’s products delivered in the past speak for themselves. Due to them, we will be called to perform similar projects, or on the other hand any other customer (including the previous one) will request any other project from us. So, our focus needs to be on the Company’s success, not only on the Project’s success. The Long-Term Satisfaction is a must.

Short-Term Satisfaction (On Time)

For being on Time, we need to master some aspects like Estimating, learning to Manage Time Delays, learning how to Manage Projects with Fixed End Dates, etc. Remember that short-term satisfaction will be forgotten quickly and replaced by long-term satisfaction aspects. So don’t sacrifice basic quality, it is better to work over scope and budget.

Making good decisions during the project is critical to acomplish it on time. Removing tasks that don’t afford value to the final product and actual agreed upon scope helps to finish it on time.

Realistic Plan and Good Implementation means no reworks (On Budget)

A detailed and realistic project plan helps to implement it within the confines of the budget. Both are important: planning and executing. If all goes as planned, the budget also should go as planned. Reworks always have a great impact on budget. Usually these are costs overruns, time not schedulled and resources not planned.

Sugested commission structure for your Project Managers (Bonus)

So, finally a good commission for Project Managers should be something like this: 

Bonus = 40% * OQ + 20% * OS + 20% * OT + 20% * OC

OQ = On Quality
OS = On Scope

OT = On Time or Schedule
OB = On Costs or Budget

Have you come across a project manager bonus structure that works?