HOW TO MANAGE YOUR PROJECT BUDGET
As discussed in Part I and Part II of the Triple Constraints; the project schedule, scope, and budget are all closely intertwined and greatly affect the project quality. One of the constraints cannot be changed without impacting the others and therefore, they each need to be managed appropriately. Significant details on how to manage the project schedule and the project scope have been discussed, Part III will now take us through managing the project budget.
The budget can vary greatly from project to project, but there are shared approaches to managing each one. These are the common tactics to use to manage your project budget:
CREATE A TEMPLATE
Create a template for yourself that you can continue to reuse throughout your PM lifetime. Establishing a base template will allow you to remember where you’ve spent the highest percentages of the budget in the past. You can break the budget down into categories such as resources or team celebrations to provide a higher level analysis of project spend. It’s also a good idea to include ETC, EAC, actuals for the period, operational, and capital budget information. Maybe you’ll even go a step further and create templates for small, medium, and large projects. The templates can grow and evolve as you and your projects grow and evolve but having a base structure will keep you organized and informed.
USE PERSONAL EXPERIENCE
Your past experience will be the best resource for determining future budgets. Take notes regarding areas where you’ve overspent and/or underspent and study them to see if patterns arise. If you see consistent overspending in one area, you may need to revisit the estimating techniques to ensure higher accuracy in upcoming projects. Input this experience and knowledge into your template for future reference.
DETERMINE CORE COSTS
Know that you do not have to create the budget alone. Ask for input from other teams and team members in the form of estimating, they can be high detail if needed, and build your budget from there. You can use the bottom-up estimating approach or the top-down estimating approach to determine how long a task will take and hence how much it will cost. We prefer to use a combination of both when time permits as we find it provides a higher level of accuracy and less room for unknowns to surface throughout the project.
BE ATTENTIVE
Be vigilant when managing the overall budget. Have budget meetings and touchpoints to ensure all team members are tracking on or under budget. This will ensure there are no surprise budget overruns and you can hold everyone accountable for their project spend. The team(s) will consistently know where they are in terms of expenditure and will function within their means. If the budget is extremely large, and the organization allows for it, designate individuals to approve certain tiers of spending, you will be saved from becoming the approval bottleneck.
RESOURCES COST MONEY
Be mindful of the cost of your resources. Resource planning will help you with determining the skillset required for your project. You shouldn’t hire above or below the skillset needed as both choices will leave you spending more of the budget than required. Hiring a junior resource when a senior is required will be costly as time and duration may increase thus increasing their total. On the flip side, hiring a senior resource when you need and intermediate is just as wasteful as their skills are not required for the project. Determine the exact skillset required and hire professionals for a proven track record.
MANAGE SCOPE CREEP
Scope creep also costs money. When resources are working on a task, they are using your budget. Saying yes to upgrades, add-ons, or changes will impact the overall project cost. Have a process for managing new requests that require teams to obtain sign off approvals. Add scope management to the agenda during team meetings and have everyone speak to their respective requirements; you will get a greater understanding of the types of requests coming through to your team and can help them manage the request effectively.
BUDGET CONTINGENCY
Always reserve a contingency for unexpected events. Most projects will experience some sort of change or unplanned event that will cost additional money, don’t leave yourself short. Project risk is often used to determine the amount of contingency to put aside and can be anywhere from 5%-20%. A small, low-risk project will need a small amount of contingency whereas a large, high-risk project will need much more.
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