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Aug 1, 2011 by Brad Egeland in Project Management 101 & Tools

Increasing Project Profitability: Part 3 – Budget Management

Brad Egeland Brad Egeland is an IT/Project Management consultant, business strategist, and author with over 25 years of software development, management, and project management experience leading initiatives in Manufacturing, Government Contracting, Gaming and Hospitality, Retail Operations, Aviation and Airline, Pharmaceutical, Start-ups, Healthcare, Higher Education, Non-profit, High-Tech, Engineering and general IT.

 

Previous chapters: Part 1 – Change Management and Part 2 – Resource Management

In this final Part 3 of our three-part series on increasing project profitability, we will look at the practice of budget management and how the project manager can skillfully stay on top of the budget forecast and actuals to help ensure that the project budget stays on track.

Just as scope needs to be managed closely to ensure that unplanned work is not hitting the budget and just as resources need to be closely guarded and managed to ensure that they are focused on the important tasks, it is also necessary to continually stay on top of the project budget. All three of these concepts are intertwined, but the best way to ensure that none of these three items are killing the project financially is to be monitoring the project budget on a continual basis. Let’s consider these three steps to effectively and efficiently keep the project on track through proper budget management:

Draft the budget from the initial scope and estimate

All projects start with a scope or statement of work and an estimate which also may be the sale price of the project to the customer. From this scope and the estimated price, the project manager can create a draft budget that – along with the draft project schedule and assigned tasks – will begin to take shape and take on detail as more detailed work is mapped out.

The end result should be a full-scale, end-to-end project budget showing all resources, equipment, vendors, and other items that will be charged against the project and when those charges are expected to occur. For resources, of course, this information comes from the timing of their detailed tasks in the project schedule. Starting with a well planned project budget that matches up with the price and scope of the project will help get the project off on the right foot financially.

Revisit and reforecast weekly

It’s definitely not enough to create a detailed budget and then leave it alone. A budget that is closely monitored throughout the project engagement can never get too far out of control without the project manager knowing it. A 10% budget overage is easy to correct. A 50% budget overage is nearly impossible to recover from.

Review the budget on a weekly basis and revise it with the actuals from the previous week. Watch for trends and remember to revisit identified risks as you review and remap the budget on a weekly basis. If things are beginning to get off track budget wise, work with your team and customer on possible solutions before it gets out of hand.

Make the team accountable

Our project team members are often involved in multiple projects running concurrently. At the end of the week, when everyone is documenting how and where they spent their time, there are always a few hours that are hard to assign to a particular task or project. They were viable working hours, but by Friday afternoon it’s hard to remember every detail of the work you performed that week. Those ‘grey’ hours have to get charged somewhere and you’ll find that your project team members often place those hours on the project whose manager is not watching the budget closely.

Involve your team in your weekly budget analysis. Help them to understand how important the budget is and what it’s health status is on a weekly basis. If they know that you’re a project manager who is concerned about the project’s budget and profitability, your project will not be on the receiving end of those ‘grey’ hours. And your project will be much more financially healthy for it.

brad-egeland
Brad Egeland

Brad Egeland is an IT/Project Management consultant, business strategist, and author with over 25 years of software development, management, and project management experience leading initiatives in Manufacturing, Government Contracting, Gaming and Hospitality, Retail Operations, Aviation and Airline, Pharmaceutical, Start-ups, Healthcare, Higher Education, Non-profit, High-Tech, Engineering and general IT.

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