Project Management Professional (PMP)® Articles - How to Stay on Budget

How to Stay on Budget While Managing a Project

Savvy project managers know that overseeing a project doesn't come cheap. There are many resources involved, and the two most precious are time and money. The very nature of project management makes it challenging for project managers to keep things affordable. Whether it is compensating team members, purchasing needed software and tools, or handling scope and spec changes, the cost can begin to add up. The battle to stay in budget and efficiently manage expenses is one that project managers will always have to fight. If you are finding yourself in this position, know that you are not alone. Take a look at these stats regarding project management budget issues many project managers and teams are running into:

  • According to a survey distributed by The Access Group, businesses identified "capturing time and cost against projects" as their biggest project management challenge.
  • Data gathered by Gartner revealed the failure rate of projects with budgets exceeding $1 million is 50 percent higher than the failure rate of projects with budgets below $350,000.
  • A study by the Harvard Business Review found that the average overrun of IT projects was 27 percent. Startlingly, they also found that one in six projects has a cost overrun of 200 percent on average and a schedule overrun of almost 70 percent.

Professionals all across the country are experiencing challenges when it comes to keeping projects in budget and within a specified deadline. However, there are steps you can take to make it more likely that your project will not exceed cost or the designated agree upon timeframe. Read on for eight tips for staying on budget while managing a project.

Take Time to Truly Understand the Needs of Your Client

Whether you are working on a project for an internal or external stakeholder, it is crucial to understand what their expectations are regarding the project. Never assume or go on a hunch when it comes to creating deliverables. Always ask for further clarification and get a sense for the goals they have for the final product. Ensure that all project requirements and specifications are documented, understood, and communicated to all involved in working on the project. It is also vital to keep clients in the loop of what is going on regarding the project. Speaking with them sooner rather than later after the start of the project allows you to work with them to catch a mistake or add on something that would be expensive to put in later on.

Ensure Your Team Understands the Expectations

While you may be overseeing the project and stepping in when needed, your team is likely going to have the most hands-on interaction with the actual composition of the deliverable. As a result, it is imperative that your team understand the expectations and project requirements. Messaging can quickly become “lost in translation.” As a result, a project can end up costing more money or taking more time to complete due to a miscommunication. So, ensure that you are taking the time to communicate all project requirements and changes to team members in a clear way.

Create a Comprehensive Project Plan

You wouldn't hike a trail without some a map or some form navigation, so the same should be true for any project management process. You and your team should have a blueprint that allows you to plan for the trajectory of the project. Each phase of the project should be discussed within this plan. This process will allow you to think through things like ideation, scope, and any surprises or scope changes that may arise. Once this occurs, you should share this document with everyone involved in the project (including clients and stakeholders), and have them sign off in agreement. This way, everyone understands the progression of the project and the part they play in making sure all goals are met. This step will then help you create a budget that is in line with this plan.

Build Surprises and Potential Delays or Changes into Your Plan

In an ideal world, there would never be any changes, delays, or unintended occurrences that throw off your project. Unfortunately, we do not live in such a society, and it is always likely that something will occur to throw off your plan. While you might not know exactly what this will be, you do know that something will potentially happen. So, be sure to plan for this occurrence in your budget. Create a line-item just for surprises and scope changes. To get a sense for what this exact number could be, and take a look back at other projects where these situations could occur and add them to your current budget. There could be changes due to weather, the departure or absence of a vital member of the team, client or stakeholder requests, or a situation of miscommunication. So, try to think ahead and plan for the worst.

Review the Budget and Edit as Needed

A lot can happen when you are not keeping an eye on the budget. Something as simple as checking your balance against what you forecasted can help you prevent an overrun. Never assume that you are on budget, always monitor and track your spending. Consistent oversight is crucial to staying on budget. For example, you might have thought a piece of software was one cost, but it was actually a lot higher than you anticipated. Instead of just going with the flow, see how much this purchase takes you off your goal. You can then re-forecast or re-allocate as needed. Always have an eye on how much you are spending. You never know when you might keep a small overrun from turning into one that unmanageable.

Monitor Your Team Members Work as Well as Their Hours

This entry is a huge one! A worker's productivity is connected to your budget. So, it makes sense to look at how efficiently they are working to accomplish the goals for the process. It is easy for billable hours and the scope of the work to eventually spiral out of control, especially if an eye is not kept on it. Make sure you require workers to track their work hours. Take a look at all work reports each week and even do some additional research into how work is being accomplished. Pay attention to how long it takes for specific tasks within phases to be completed, or if more unplanned work needs to be done. Keeping an eye on these factors can help you get a handle on a costly situation before it gets out of control.

Create and Track Project Cost KPIs

There are many helpful metrics that you can keep track of to keep an idea of how your budget is progressing alongside your project. The right KPI can help you understand if you are on track to stay on budget or if you are at risk of overrunning. Begin to incorporate KPIs and metrics into your budget oversight process. Here are some KPIs that are worth including in your budget analysis:

  • Productivity – Units Input/Units Output: A measurement of how much you are getting out of the work you are putting in.
  • Actual Cost – The amount of money that has been spent on this project to date.
  • Earned Value – Percent of Completed Work/Budget at Completion: This is an excellent metric for determining how much of your current budget you have used to complete the present amount of work. This metric will help you to understand if you are at risk of overrunning or already have.
  • Cost Variance – Budgeted Cost of Work – Actual Cost of Work: This calculation is an excellent way to see if you are saving money on various aspects of your project, or if you are also in danger of going over budget.
  • ROI – (Net Benefits/Cost)*100: ROI or Return on Investment allows you to see how much money you have earned on the investment of the project. This KPI is one that most internal stakeholders (especially investors and senior leadership) will be interested in.

There are many other KPIs you could use, but these five will give you a good sense of if you are staying on budget and can eventually gain profit from your efforts.

Always See How You Can Improve

Hopefully, utilizing these methods will help you meet or come in below your budget. However, always look at ways to consistently improve on your results. Is there a way to more effectively delegate work so productivity increases? Can you look into cheaper software program options? Is there a way better integrate scope changes earlier in the process? Use your observations as well as input from team members and other internal stakeholders regarding efficiency improvements. Always look for opportunities to optimize your project management process.

Final Thoughts

Again, project management is not cheap. One scope change or miscommunication can send a project far past the designated budget. That is why it is crucial to have a project plan in place that allows you to prepare a budget to handle expenses and surprises. While a project plan and budget will always help you rather than hurt, it is also necessary to understand that even with the best strategies you will not be able to plan for everything sufficiently. As a result, practices like monitoring KPIs and general budget oversight will help you catch inevitable problems and derailments. Typically, the success of a project depends upon how well the budget is managed. So, make pre-planning, forecasting, and oversight a top priority for you as well as your team. These methods will put you closer to achieving holistic project completion success.

Sources:

10 Project Management Metrics to Propel Performance, www.workfront.com/blog/10-project-management-metrics-to-propel-performance

20 Surprising Project Management Statistics, blog.capterra.com/surprising-project-management-statistics/

Gartner Survey Shows Why Projects Fail, thisiswhatgoodlookslike.com/2012/06/10/gartner-survey-shows-why-projects-fail/

How to Manage Project Budgets: Four Tips, www.cio.com/article/2406862/project-management/project-management-project-management-4-ways-to-manage-your-budget.html

Why Your IT Project May Be Riskier Than You Think, hbr.org/2011/09/why-your-it-project-may-be-riskier-than-you-think