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 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
distributed by The Access Group, businesses identified "capturing time and cost against projects" as their
biggest project management challenge.
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
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. Continue reading for eight tips on how to manage and stay
on a budget in project management.
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.
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 budget
planning methods in project management will put you closer to achieving holistic project completion success.
10 Project Management Metrics to Propel Performance,
20 Surprising Project Management Statistics,
Gartner Survey Shows Why Projects Fail,
How to Manage Project Budgets: Four Tips,
Why Your IT Project May Be Riskier Than You Think,