Keeping a project under budget is one of the many things a project manager has to control. This video with project management expert Devin Deen offers tips and hints on how to keep budgets reined in on your projects.
In Review: Keeping Your Project Budget Under Control
Devin explained how money is often the measurement of success, so keeping the cash flow controlled and within your stated prospectus is just one more feather in your cap as a project manager.
While there’s no magic bullet to eradicate overspending, there are fundamental things you can do to manage and control your budget.
- Set your budget up correctly from the start
- Get good cost estimates
- Identify Risks
- Monitor and manage your budget throughout the project
- Have accountability from the entire team
- Weekly status reporting to ensure you’re within your budget
Remember, this is the bare minimum you should be doing to keep your project coming in under budget. But following these tips will help you control and manage your budget, which is an important, maybe the most important to your stakeholders, aspect of your job.
Pro-Tip: If you’re doing the basics, then you have the leeway to get a bit fancy. That means doing earned value calculations, budgeted costs of the work scheduled against the actual cost of the work produced and performed, making sure you calculate schedule variance, cost variance, schedule a variance index and cost index to show how you’re tracking to achieve your budget goals. You can never be too diligent when it comes to the budget.
To help expand your view of the budget, here the Harvard Business Review offers you tips on better budget building.
Thanks for watching!
Hi. I’m Devin Deen, Content Director here at ProjectManager This week’s white board topic is about keeping your projects under budget. Now I wish I could give you some secret sauce to sprinkle over your project team members or your project budget, your project schedule and plan, just to make it all work for you and ensure that it does sort of return a project that’s under budget, but really, there is no secret sauce for this.
However, there are some fundamental things that you can do as a project manager to make sure that you do manage and control that budget with scheduling and make sure that you deliver that project on budget or at least under budget. I’d like to go through some of those with you today.
So, the first thing to remember, it actually starts at the start. You’ve got to have that budget set up correctly at the start of the project. Generally speaking, when you’re doing the initiation phase of a project, you’re doing a planning estimate, a budgetary estimate. So, it’s something around a plus 25%, minus 10% of what your actual project budget might be. But you’ve got to get that right from the start.
So, after you finish your initiation phase, get your feasibility study done and your business case approved, then you can be a little bit more precise on what that project’s going to be and start to apportion off the total project budget for executing on that project and the contingency that you’re going to hold yourself as management reserve.
Good estimates are the key to that. I usually run three different types of estimates before I actually commit to a project budget. First one I do is a top down, parametric estimate. So I use past projects, I use different parameters that project is going to deliver, things like how many systems you’re going to have to integrate with or how many end users are going to use your application. Multiply that by the number of effort, a task required to achieve that deliverable, and out pops your answer. That’s your basic top down estimate using parametric techniques.
Another technique I use is a bottom up estimate. So I get the experts who’ve done it before, get them in a room together, and have them list all the activities that they need to go through to actually achieve each of those deliverables. Sum up the bottom of the list and you’ve got your bottom up estimate.
The last estimate I do is I organize those tasks from both the top down and the bottom up estimate into a project schedule, assign resources, blow those tasks across time, and see how they’re going to integrate with one another and then, once again, add up the estimates that the project schedule has given me.
I correlate the three different answers from each of those estimating techniques to give me a better feel of the variance between those and a better feel of what that budget’s going to be. Then, with the whole project team, we go through and identify those risks. The risks is what’s going to kill you on the project. It’s really where your budget’s going to get out from underneath you.
If you don’t identify the risk at the start of the project and then periodically revisit that risk register as you’re executing, you’re going to run into a lot of issues. Issues cost you money, they cost you time, they cost you heartache and grief. They’re always going to cost you time back with the stakeholder and, unfortunately, if you let your project issues get away from you, you’re going to have to go back to the well and ask for more money. And no project manager wants to do that.
So once again, identifying your risk at the start of the project with your project team will really help you get the project kicked off in the right direction with accurate and realistic budget expectations from your stakeholders and your project team members.
Once you’ve kicked the project off, you then really need to monitor and manage that budget closely. So that’s the next sort of tip I’m going to give you. Set the budget up correctly at the start and then monitor and manage it across the execution phase. The first point on this is the team. You’ve got to get the team who actually invested in that budget themselves.
If you are the only person on that entire project team who cares about the budget, you have a very, very low likelihood of achieving the budget that you’ve set out. You’ve got to get the team members to buy into the estimates that they’re putting together, to own the accountability of delivering on those estimates, and to watch their individual effort on each of the tasks leading up to achieving those deliverables for each of the projects. You’ve got to get the team engaged. They are the key part of making sure that you manage that project so that it’s going to come in on or under budget.
Next thing is you get what you inspect. Whilst the team is out there and doing what they’re doing and being open and honest with you about how they’re tracking it’s progress and owning those estimates, you still need to go out there, inspect it. Never, you never get what you expect, you always get what you inspect.
So make sure you’re going out there asking the probing questions to the project team trying to uncover more risk items, which could cause you grief along the line and putting those risk items in the register and managing them and mitigating them so they do not occur or to minimize the impact if they do occur.
The basics. The basics on ensuring that you make sure you hit your budget is actually about the monitoring and control and management of that. It’s your weekly status reporting. It’s showing progress against tasks. It’s talking to team members on a weekly basis about how they’re going and if they’re not achieving what they set out to achieve for the effort estimate that they expected they would, then go and ask them what else they need to achieve that success. It’s working with the team members, getting out there and every day ensuring that they’re achieving the objectives and every week reporting on that in a status report.
By merely putting up on the front of the rest of the project team how individuals are doing on their task, you’ll see that they’ll be quite motivated to ensure that they achieve those objectives on the effort estimates that they asked for. And if they’re achieving that, you’re going to get your budget.
Getting a little bit fancy. Okay. You can do a lot of things as a project manager, play with a lot of numbers to ensure that you are, and communicate how you’re doing against your budget. Really, if you’re not doing the basics, getting fancy doesn’t help at all.
So if you are doing the basics, you’re reporting on the task progress weekly, you can then afford to get a little bit fancier. Getting fancier is doing things like earned value calculations, doing the budgeted costs of the work scheduled against the actual cost of the work produced and performed, ensuring that you can calculate your schedule variance, your cost variance, your schedule variance index and your cost index to show people how you’re tracking against the project and what you intend to achieve in terms of your estimates to complete.
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