Energy Engineering

ISSN: 0199-8595 (Print) 1546-0118 (Online) Journal homepage: http://www.tandfonline.com/loi/uene20

Effective ESCO Project Management

Barry I. Benator

To cite this article: Barry I. Benator (2018) Effective ESCO Project Management, Energy
Engineering, 115:1, 60-75

To link to this article: https://doi.org/10.1080/01998595.2018.11950818

Published online: 22 Nov 2017.

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60 Energy Engineering Vol. 115, No. 1 2018

Effective ESCO Project Management*

Barry I. Benator, PE, CEM

ABSTRACT

Congratulations! The performance contracting opportunity you

have been working on for the past 6-12 months has finally been negotiat-
ed and awarded. Now it’s time to perform for your company and the cus-
tomer. As the energy service company (ESCO) project manager in charge
of this project, you have a tremendous opportunity to make money for
your company, enhance your career, save your customer a lot of energy
and dollars, build an enduring and mutually beneficial relationship with
that customer and lay the groundwork for future performance contracts
with this and other customers. To do this, you must now manage this
multimillion dollar project. You can do it, but your solid engineering
skills that have served you so well up to the present must now share the
spotlight with your professional project management skills. You need
to think like a manager—the person who has to make it all happen. You
must now manage the financial, technical and schedule performance of
the project in a manner that satisfies the contract, and meets or exceeds
the expectations of your client and your company’s management. This
article presents proven project management competencies you can use
to achieve those goals.

WHY PROJECT MANAGEMENT?

Before diving into the “what to do and how to do it” details of

project management, let’s take a moment and examine why good project
management is so important to you, your company and your customer.

Consequences of Poor Project Management

• Late deliveries/Missed deadlines

*Originally published in the 2016 World Energy Engineering Congress proceedings.

 61

• Cost overruns
• Does not meet customer’s needs
• Unhappy customer
• High stress for everyone
• Reduced business opportunities.

Benefits of Successful Project Management

• Increased profits
• Increased cash flow
• Satisfied, even delighted, customer
• Repeat business from that customer
• New business based on recommendations from that customer
• You and your project team are winners.

Effective project management is often the decisive factor in deter-

mining whether a project meets or exceeds expectations, or is one that
everyone associated with the project is running away from. Which type
of project do you want to lead?
Clearly the benefits of good project management offer plenty of
incentives for project managers to do what it takes to lead and manage
their project to a successful conclusion. Yet, the annals of project man-
agement history are filled with horror stories of projects gone bad. This
article presents proven ways you can lead and manage your projects to
a successful conclusion.

CONTRACT NEGOTIATIONS

Before the project can begin, it will need to be negotiated. The sub-
ject of contract negotiations can fill a 1- or 2-day seminar, but it is such
an important part of any project, that the fundamentals presented here
may be of assistance to many project managers.
The first and most important principle of effective negotiations is
that it is NOT a contest where one side wins and the other side loses.
In fact, it is just the opposite—a successful negotiation is one in which
BOTH SIDES WIN. In other words, a successful negotiation is one in
62 Energy Engineering Vol. 115, No. 1 2018

which 1 + 1 = 4, or everyone is better off than they were before the nego-
tiation.
A few of the fundamental tenets of successful negotiations are
listed below.

• People negotiate to satisfy needs; therefore, look for creative ways

to satisfy your needs and your counterpart’s needs.

• Establish a climate of mutual interests and trust.

• Negotiation is the beginning of a process, not the end. Treat your

counterpart as someone with whom you want to do business for
many years in the future. Hopefully you will.

• Don’t be afraid to give up something to get something.

• Be open to creative ways to satisfy your and your customer’s criti-

cal needs.

• Remember, in a successful negotiation, it’s not about who wins or

losses. It’s about both parties winning and both parties being better
off than they were before the negotiation.

IT ALL BEGINS WITH PLANNING

Concurrent with or soon after completing negotiations, it’s time

to plan for success. For many managers, one of the least exciting and fun
things to do is plan. This author has taught leadership and project man-
agement to more than a thousand project managers, engineers, leaders,
marketers and financial staff. Based on discussions with these business
professionals, it is safe to say that planning is one of the least-enjoyed
roles of management. Yet, it can be the key determiner of success in a proj-
ect.

Why is planning so important to delivering a successful project?

A well thought-out and executed project plan is your map to success.

Just as a good roadmap will help you avoid wrong turns on the way
to your destination, so will a good project plan show you the way to a
profitable, on-time, customer-satisfying project.
 63

So, what are the ingredients of a successful project plan? Details

and specifics, of course, will vary from project to project, but the follow-
ing list includes the basics that are part of virtually every good project
plan.

PROJECT PLAN ELEMENTS

• Deliverables—what are they, when are they due?

• Resources—people (yours, customers’, vendors’), computers,

equipment, access to customer’s site, customer contact person,
vendor support, …

• Resource conflicts—people, technology, equipment, vacation,

weather, etc. How will they be handled?

• Budgets—for each project task and phase

• Schedule—with dates, milestones, dependency relationships. Bar

chart, program evaluation and review technique (PERT) chart.
Responsibilities listed.

• Agreement—by project team members, both internal and external,

on what they are responsible for.

It’s a fact of life that things change, and plans will need to change.
But if you start out with a strong plan, and make every effort to stick to it
unless there is a good reason to change it, you will have a greater likeli-
hood of reaching your destination than if you try to wing it.

ALIGNING THE PROJECT TEAM

After you have completed negotiations and have your initial proj-
ect plan, you will want to ensure your project team knows what is to be
done, when it is to be done, who is to do it and to what quality standards
it will be done. Using the project plan, you can help ensure your project
team is aligned with the requirements of the contract and your approach
64 Energy Engineering Vol. 115, No. 1 2018

in leading it.
In addition, throughout the project, you should keep your team
informed on the progress of the project in a timely manner and provide
feedback. How to do this:

• Kickoff meeting
• Progress meetings
— In-person
— Conference calls
— Web-based (e.g., Skype, GoToMeeting, WebEx,...)
• Emails
• Others…

Whatever means you choose, ensure that throughout the project

you communicate effectively with your team and they communicate
effectively with you, and each other. Problems will occur; don’t keep
them a secret. Encourage people to tell you when they sense a problem
developing. This means you do not kill the messenger.

EFFECTIVE TECHNICAL MANAGEMENT

Technical management is one of the big three of project manage-

ment (schedule and financial management being the other two). Because
many project managers are engineers by training and profession, there
can be a natural tendency to be the lead engineer on the project instead of
the project manager. On small projects this may be justified. However,
on large projects, too much attention devoted to technical matters by the
project manager can siphon away his or her attention from other impor-
tant aspects of the project such as financial and schedule management,
customer relations and vendor management.
Your role now as project manager is to select a good project engi-
neer to manage the technical aspects of the project so you can manage
the entire project. You can fulfill your technical management responsi-
bilities in a number of different ways:

• Communicate to your technical staff the importance of meeting

project technical specifications
 65

• Ensure they know you are to be immediately informed if there is

any possibility that a technical specification may not be met

• Plan work-arounds if it looks like an obstacle is going to impact

project technical performance

• Use a prime engineer-check engineer system to help ensure quality

• Hold project team members accountable for their technical perfor-

mance

• Hold frequent project review meetings, both internally, and with

the customer, when appropriate.

EFFECTIVE SCHEDULE MANAGEMENT

Project schedule management is another one of the big three. As

project manager, you have the ultimate responsibility for bringing this
project in on schedule. In some cases, a schedule slippage can be little
more than an inconvenience. In other cases, it can be a major disruption
to your client, with concomitant repercussions to your firm’s reputa-
tion, its financial position and possibly to your career. Here are a few
time-tested tips that will help you bring your project in on or ahead of
schedule.

• Communicate to your project team the importance of meeting proj-

ect milestones and task-completion dates. This is a never-ending
effort on your part.

• Ensure they know about any changes in deliverable dates based

on internal changes, changes agreed to by the customer or those
changes driven by a vendor or subcontractor.

• Hold project team members accountable for their roles in meeting

schedule commitments.

• Hold subcontractor and vendor project team members accountable

for their role in meeting schedule commitments.
66 Energy Engineering Vol. 115, No. 1 2018

• Keep your project manager’s early warning systems tuned to pick

up potential schedule slippages:
— A subcontractor saying he/she has problems getting needed
materials or equipment
— A member of your project team says he or she is having trouble
with a time-sensitive task
— A critical member of the project team becomes ill for more than
a few days.

Look ahead—way ahead—for obstacles that could impact the proj-

ect schedule; e.g., vacations, threatened strikes, weather issues.

EFFECTIVE FINANCIAL MANAGEMENT

Effective financial management is the third of the big three of ef-

fective project management. It is comprised of a number of elements
that, taken as a whole, will contribute to bringing the project in under
budget. The starting point of effective financial management is a proj-
ect budget.

Project Budget
The project budget is your primary means of managing the financ-
es of the project. It’s the target you and your team will aim for through-
out the project. A carefully prepared detailed budget will allow you to
compare projected budget numbers with actual expenditures. This in
turn can alert you to potential or actual variances that you can manage
to get actuals in line with the budget.

Recommended budget preparation tips:

Use a spreadsheet or another computer-based model to allow you to

add, delete or modify budget numbers or actuals as needed.

• Have experienced professionals, both technical and financial, qual-

ity check your financial model. Verify that all cost components
have been included, including labor, material, travel, subcontrac-
tor, overhead and other expenses. Double-check—no, triple check—all
formulas.
 69

• Don’t forget to include taxes in your budget. Doing so can reduce

profit margins fast, before you even begin the project!

Periodic Financial Reports

One of the project manager’s responsibilities is financial control of
the project. To do that, you need to frequently check the actual expen-
ditures of the project against the budgeted figures. Periodic financial
reports are a must to effectively manage the finances of the project. These
reports should show both rolled-up summaries as well as details of fi-
nancial transactions related to the project. Together, they will allow you
to maintain effective financial control of the project.

Controlling Labor Costs

Depending on the project, labor costs can be a significant com-
ponent of overall project costs. Typical issues you will need to manage
include:

• Are your labor charges reasonable, considering the work per-

formed? If not, talk with the charger and have unreasonable charg-
es removed from your project.

• Are there labor charges from people not on your project? Work
through your system to have these unwarranted charges reversed.
Don’t let your project become a haven for anyone who needs a
place to put some time.

• Mistakes happen. You have a responsibility to run all inappropriate

charges to ground and have them removed from your project.

Once it is known you are managing labor costs tightly, there will be
less likelihood that invalid costs will go to your project.

Controlling Subcontractor and Material Costs

Depending on the project, subcontractor and material costs can be
significant components of overall project costs. Typical actions you will
want to take include:

• Emphasize to your project team the importance of controlling sub-

contractor and material costs.
70 Energy Engineering Vol. 115, No. 1 2018

• Carefully review and validate vendor and sub-contractor invoices

before authorizing payment.

• Receive and check periodic financial reports for inappropriate ma-

terial costs.

• Seek multiple sources and competitive quotes. Negotiate fair prices

that give you the right mix of quality, cost, warranty and customer
service.

• Look at life cycle costing; not just lowest first cost.

• Consider an extended warranty.

• Check references of subcontractor/material suppliers—what is

their record of customer satisfaction?

Controlling Travel Costs

Excessive travel costs can eat holes in an otherwise solid budget.
Here are some things you can do to control them:

• Emphasize to your project team the importance of controlling

travel costs.

• Avoid travel if you can accomplish your mission through other

means such as teleconferencing, email, instant messaging, Skype,
WebEx, GoToMeeting, etc.

• Whenever possible, use advance purchase to obtain low air fares:

— Advance tickets can cost less than half the full fare amount
— This must be a regular part of planning
— Discount tickets should be the rule rather than the exception

• A departure time of 2 or 3 hours one way or the other can dramati-

cally impact air fares

• It is good for morale to allow travelers to keep and use frequent

flier miles; however, you should not allow project staff to take
higher fare flights just to receive frequent flier miles.
 71

Controlling Shipping Costs

Shipping costs can and should be managed in a manner similar
to airline costs. The focus is on planning and getting ahead of the cost
curve.

• Emphasize to your project team the necessity of controlling ship-

ping costs.

• When possible, ship electronically—specs, plans, etc. to your cli-

ent/partner/contractor for them to printout locally.

• If you need to ship hard copies (e.g., some customers and/or re-
viewing authorities require paper submittals), strive to complete
tasks and deliverables involving shipping in a timely manner, so
you can take advantage of longer time, lower shipping rates.

• If you do a lot of shipping, negotiate lower shipping rates with Fe-

dEx, UPS and others. In some cases, negotiated rates are less than
half of published rates.

Effective Cash Flow Management

Managing a project to profitability involves a continual, aggressive
emphasis on cash flow management. Invoicing a client is just the first
step in cash flow management. Receiving payment is the payoff. Here’s
how to increase your firm’s cash flow.

• Start with the contract between you and your client. Layout and
negotiate payment terms that are attractive to your firm.

• Seek payment terms that offer interest payments for late payments
to your firm.

• Submit your invoices as soon as possible—every day you delay

submitting your invoice is one more day your payment will be de-
layed.

• Learn your customer’s invoicing and payment process:

— Prepare your invoices per your customer’s instructions
— Submit it to the right office
72 Energy Engineering Vol. 115, No. 1 2018

— Call to ensure it was received by the right office. Do they have

any questions about the invoice?
— Get to know your customer’s accounts payable (A/P) people
who handle your invoices. Visit them on one or more trips to
your client’s office. Thank them for their role in helping you get
paid.

• Sometimes an invoice that is properly calculated, prepared and

submitted becomes stuck in the client’s A/P process. Rather than
letting it remain stuck, here are steps you can take to free the in-
voice so you can be paid.
— Track your invoices so you can minimize your days receivables
outstanding.
— Because you did get to know your client’s A/P process and
people, you may be able to locate it and free it from captivity (it
may have only been put in the wrong pile)
— Or maybe there is a new A/P person who just hasn’t gotten
around to it. A friendly inquiry may speed it on its way.
— Ask your client project manager for help if that works best for
you. If you have done a good job as PM, he/she will want to
help you.

HOUSTON, WE HAVE A PROBLEM

Even the best planned and managed projects can have things go
wrong. When that happens, it will be necessary for you to exercise
prompt and effective damage control. How you deal with the situation
could mean the difference between a smooth recovery, or one that takes
on the shape of a crisis. While every situation will be different, here are
a few tips you can use to successfully deal with an unexpected surprise
of the negative variety.

• First, stay calm! If you show signs of panic, you will induce it in
others on your project team. Not that you shouldn’t be concerned,
or foster that concern in the appropriate people on your team—you
just want to remain in control and give your project team the confi-
dence you and they can successfully deal with the matter at hand.
 73

• Gather facts about the situation. Sometimes what looks like a crisis
can be handled with a steady hand and positive leadership from
you.

• Make informed decisions. Seek opinions and recom-mendations

from others on how to deal with the situation. You will still make
the decisions, of course, but you have a lot of resources available
to you—take advantage of them. Depending on the situation, you
may want/need to involve the customer in the process.

• Identify alternatives for dealing with the situation, and the pros
and cons of each alternative.

• Make your best decision. If it will affect the customer in an explicit

way (e.g., a missed deadline, a different type of material, etc.), en-
sure your customer has been properly informed.

• Finally, learn from it. Look ahead and institute any needed changes
in your project management process to help avoid similar problems
in the future. Coach and counsel anyone who may have caused or
contributed to the problem so they learn from it. Praise and reward
those who helped fix it.

LEADERSHIP

Throughout this article we have discussed not only your role as

project manager, but also the roles of your project team. As project team
leader, you have the responsibility to lead and guide your teammates
throughout the project. While a good course on leadership can encom-
pass a 2- to 3-day curriculum, the topic is such an integral part of project
management that a few leadership principles are presented here to help
you succeed in your role as a leader. Our definition of leadership will
be “The ability to influence others to accomplish an organizational goal or mis-
sion.”

• Know your people—their strengths, weaknesses, likes, dislikes,

what motivates them. Treat them with dignity and respect.
74 Energy Engineering Vol. 115, No. 1 2018

• Commend and reward good performance. There are many ways—

lunch, dinner, tickets to a game or show, commendatory memo,
bonus, etc. A simple sincere thank you can mean a lot, and it won’t
break your budget.

• Coach and counsel those who make mistakes. But focus on correct-
ing the mistakes and learning from them, not beating up on the
people who made them.

• Celebrate with the team significant achievements and milestones of

the project. Pass on commendatory comments from the customer
or others associated with the project. This will encourage and moti-
vate your teammates to repeat the good work. The more you share
successes with the project team, the more the project becomes their
project, and not just another job.

• Always be aware that everyone associated with the project is look-

ing to you for leadership. If you set and meet high standards, run
a tight ship on controlling costs and meeting commitments, take
care of your people and serve the customer, others looking to you
for leadership will do the same. In other words, set the example
and model the behaviors you expect your project team members to
exhibit.

SUMMARY

Effective project management offers your firm and your customer a

number of highly desirable benefits:

• Increased profits
• Increased cash flow
• Satisfied, even delighted, customer
• Repeat business from that customer
• New business based on recommendations from that customer
• You and your project team are winners.

This article has discussed a number of proven project manage-

ment skills and competencies to allow the project manager to achieve
 75

these benefits. By combining effective technical, schedule and financial

management with strong positive leadership, the project manager can
bring his or her project to a highly successful on-time, under budget and
technically sound conclusion. When that happens, everyone is a win-
ner—you, your firm, your customer and your project team!

Bibliography
Project Management and Leadership Skills for Engineering and Construction Projects, Barry
Benator and Albert Thumann, The Fairmont Press, Inc./Marcel Dekker, Inc., 2003.
Project Management Excellence®, A 2- to 3-day course for project managers, Barry Benator,
Benatech, Inc.
Leadership Excellence®, A 2– to 3-day course for leaders and managers, Barry Benator,
Benatech, Inc.
Management of Organizational Behavior, Paul Hersey, Kenneth H. Blanchard, Dewey E.
Johnson, 7th ed., Prentice Hall, 1996.
The Situational Leader, Paul Hersey, Center for Leadership Studies, 1997.

————————————————————————————————
ABOUT THE AUTHOR
Barry Benator, PE, CEM, is founder and president of Benatech, Inc.,
a leadership and management consulting and training firm serving cli-
ents throughout the U.S. and internationally. He has more than 20 years
of consulting and training experience for corporate and governmental
clients, and has taught leadership and management skills to more than
5,000 executives, managers, engineers, and others in leadership posi-
tions. His clients more than 100 private sector and governmental clients
throughout the U.S. and internationally.
In his training programs, Barry is skilled in translating proven
leadership and management principles into real-world leadership tools
that leaders can take back to their job and use immediately. With an
emphasis on practicality and usability, his programs focus on achieving
strong bottom-line results for the organization. His presentation style is
highly interactive, with participant involvement encouraged throughout
his presentations. At the end of Barry’s programs, his participants not
only know what they need to do back on the job to be more effective,
they also know how to do it.
Barry holds an M.B.A. in Management and Finance from Loyola
College and a Bachelor of Science degree in Electrical Engineering from
Georgia Tech University. He may be contacted at bbenator@benatech.
com.