Six Tips for Managing the Project Budget - Executive Salad

Six Tips for Managing the Project Budget

Many projects will benefit from a Financial Management Plan. This plan provides guidance on how you will estimate, budget and manage costs.

If you want to successfully manage your budget you have to be sure to capture all of the expenditures paid to date, including all expenses related to labor, equipment, supplies, material, etc. Then compare the numbers against your budgeted spending for this same time period. You may or may not have an apples-to-apples comparison. There are a couple reasons why a project may look like it is having budget problems when it may really not be.

  • Some expenses may be budgeted for, but in another time period. If you paid for a major purchase this period that was originally scheduled for next period, then it shouldn’t surprise you to see that you are technically ‘over budget’. This type of expense overrun will even out over time.
  • You may appear to be over budget but you may also be ahead of schedule. For instance, you may have paid a contractor overtime to get ahead of schedule. In this case, your estimated budget at project completion should show that the project would complete within its original allocated budget.

The following scenarios illustrate over-budget situations where the project really is in jeopardy. If you are trending over budget because of these situations, corrective actions are required.

  • The project may be trending over budget because some of the activities cost more than estimated. This could be because of working unscheduled overtime or applying more resources than estimated. In this case, if the trend continues, the project budget may be in jeopardy. This should be raised as a budget risk unless there are mitigating factors that will allow the over-budget trend to reverse.
  • Your estimated cost projections may turn out to be wrong because you may have underestimated labor or non-labor costs. If you have an estimating contingency budget, you can tap into it to help offset these estimating errors.
  • It’s possible that mandatory activities or project expenses were missed when the original estimates were created. If the work or expense is required, but missed in the estimating process, you will not be able to invoke scope change management. In this case, a budget risk should be raised unless there are mitigating factors that will allow you to recoup the additional expense through a cost savings somewhere else.
  • You may be working on activities that are outside the approved Project Charter or business requirements. If so, the new work should stop until scope change management can be invoked. Even if the over-budget situation can be recouped somewhere else through cost savings, scope change requests should not be allowed to impact the project unless they were approved, along with the corresponding approval of revised budget.

If these types of situations occur, the project manager needs to investigate more to determine whether there is a problem, potential problem or no problem at all.

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