Today we’re gonna talk about project budget. Specifically, we will touch base on one of the project management’s nightmares – what if we have made a little mistake in managing project budget?! Where a mistake could be made, and how to prevent it?
Is it really important?
We’re gonna talk about the most common issues and problems that project managers face while dealing with project budget. Actually, I’m gonna name five of them.
Project budget is the money that you need in order to deliver a project. Actually, here comes everything that you need to pay for in order to get things done. This could be some licenses, equipment, tools, software, team payments, outsourcing payments, procurement payments, insurance payments, whatever that you need to get and wherever that you need to pay for in order to deliver results.
Obviously, managing project budget is a huge responsibility. As this relates to funds, and all the time when you touch funds you are experiencing kind of a pressure. You are going to report what the funds were paid for, what they were spend on, and how you are going to manage it in order to deliver the results efficiently.
When you’re dealing with funds it is extremely important to be super attentive to keep the track of action and to check the expenses on a regular basis.
However, as well human we should not forget about risks and here risk management comes in. As you know risk management is one of the most important processes in the project management activities in general, because risk touch base everywhere across the project management processes and here it is especially important to be able to manage risks within project budget.
By the way, what are the most common budget problems that you have faced on projects? Please let me know in comment and I would be happy to discuss them with you.
Now let’s get back to our budget and let’s start with risk analysis. When potentially can we experience issues with budget and when there is a possibility to make a mistake?
Project budget during initiation
For instance, in the very beginning this could be the moments when we are informed about the budget. Usually these are we are initiating a project and we are being notified that the client has only that much money to deliver a project.
Not to make a mistake it is extremely important to write down the exact amount of money that the client is willing to spend and is able to spend on a project. We need to fix this information in the project charter so that any time we need information about the project we could refer to it and we could see it from a glance – how much money do we have to deliver a project.
Project Scope Estimates
Next possible point when we can make an error while working with project budget is when we are calculating the project cost. This is strongly aligned with the project scope.
First and foremost we need to have a clear list of items that are going to
be executed, or purchased, or provided in order to deliver the project. A huge mistake here that could be made due to the human reasons is to write down everything manually.
Nowadays, this is a real blessing to have the automated systems and tools that we can utilize in order to make the accurate calculations. Frankly speaking, that was the case on one of my projects. At those times when I was assigned to this project, there were no project management tool implemented within the company procedures and all the calculations of the project budgets were made in the simple excel spreadsheet. One of the items was simply skipped from my attention and it was not included in the total project cost.
That is why using some automated project management tool is way much more convenient and efficient rather than reading down the long list of items that you may have in your notepad or in your excel spreadsheet.
Scope Creep Threat
Okay, imagine we have already skipped this step. We calculated the project cost, we provided information to the client, we got an approval for it and we are now allowed to start the project.
Another point when we can face some errors in project budget is scope creep, and by the way I have explained this term and how to approach it in this episode. In a couple of words, scope creep is not approved changes in the project scope. It significantly impacts all the general project KPIs, and obviously as a result it leads to changes in the project budget which we do not want on our projects.
That is why as project managers we want to keep a close eye on our scope management plan and on our scope in general in order to avoid scope creep and to avoid relevant issues with the project budget.
Expenses Overruns
Moving on, next point when we can face issues with project budget is extra expenses or expenses overruns in project resources. There is actually lots of sources where we can experience cost overruns. Should this be internal project team resources, for instance, if some functionality finally costs more than it was initially expected; or, let’s say, this could be some equipment that we need to lease for a longer time; or the price for it has changed; or maybe we need to purchase additional license in order to deliver a project; perhaps these are some contract overruns when we are outsourcing some stuff in order to be delivered from the outsourcing team, and the prices, or maybe duration of work have changed.
Here is where again risk management comes into the game. Basically, risk management is the KING, because it helps to prevent a lot of issues on projects that may relate to all the general project KPIs, specifically to the budget in our case. This means, we need to do a very precise and accurate risk analysis and risk management plan in the very beginning (and continuously during the project) in order to prevent or minimize possible budget risks further on.
Project Budget and Waste
Another common problem that we can experience during budget management is waste. This usually relates to quality management. Along with risk management, quality management should also be implemented across the project. What is extremely important to understand is that quality should be built into the project in order to minimize waste.
Waste can cause a lot of issues related to the project budget. If we do have
quality plan and quality assurance implemented into the project work; if the team and stakeholders are trained to deliver results of quality, then we can to reduce a possibility of wastes on projects and minimize risks related to waste while working with a project budget.
Now you know my top five checkpoints that I pay special attention to while dealing with project budget. Let me know in comments what checkpoints do you have when you’re managing budget on a project?