Project Cost Management Tips: Keeping Your Project Budget Under Control


Transcript

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[Musice Intro]
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>>Hi.
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I’m Devin Deen, Content Director here at ProjectManager.com.
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This week’s white board topic is about keeping your projects under budget.
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Now I wish I could give you some secret sauce to sprinkle over your project team members
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or your project budget, your project schedule and plan, just to make it all work for you
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and ensure that it does sort of return a project that’s under budget, but really, there is
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no secret sauce for this.
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However, there are some fundamental things that you can do as a project manager to make
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sure that you do manage and control that budget with scheduling and make sure that you deliver
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that project on budget or at least under budget.
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I’d like to go through some of those with you today.
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So, the first thing to remember, it actually starts at the start.
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You’ve got to have that budget set up correctly at the start of the project.
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Generally speaking, when you’re doing the initiation phase of a project, you’re doing
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a planning estimate, a budgetary estimate.
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So, it’s something around a plus 25%, minus 10% of what your actual project budget might
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be.
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But you’ve got to get that right from the start.
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So, after you finish your initiation phase, get your feasibility study done and your business
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case approved, then you can be a little bit more precise on what that project’s going
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to be and start to apportion off the total project budget for executing on that project
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and the contingency that you’re going to hold yourself as management reserve.
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Good estimates are the key to that.
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I usually run three different types of estimates before I actually commit to a project budget.
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First one I do is a top down, parametric estimate.
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So I use past projects, I use different parameters that project is going to deliver, things like
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how many systems you’re going to have to integrate with or how many end users are going to use
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your application.
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Multiply that by the number of effort, a task required to achieve that deliverable, and
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out pops your answer.
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That’s your basic top down estimate using parametric techniques.
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Another technique I use is a bottom up estimate.
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So I get the experts who’ve done it before, get them in a room together, and have them
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list all the activities that they need to go through to actually achieve each of those
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deliverables.
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Sum up the bottom of the list and you’ve got your bottom up estimate.
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The last estimate I do is I organize those tasks from both the top down and the bottom
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up estimate into a project schedule, assign resources, blow those tasks across time, and
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see how they’re going to integrate with one another and then, once again, add up the estimates
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that the project schedule has given me.
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I correlate the three different answers from each of those estimating techniques to give
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me a better feel of the variance between those and a better feel of what that budget’s going
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to be.
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Then, with the whole project team, we go through and identify those risks.
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The risks is what’s going to kill you on the project.
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It’s really where your budget’s going to get out from underneath you.
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If you don’t identify the risk at the start of the project and then periodically revisit
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that risk register as you’re executing, you’re going to run into a lot of issues.
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Issues cost you money, they cost you time, they cost you heartache and grief.
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They’re always going to cost you time back with the stakeholder and, unfortunately, if
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you let your project issues get away from you, you’re going to have to go back to the
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well and ask for more money.
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And no project manager wants to do that.
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So once again, identifying your risk at the start of the project with your project team
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will really help you get the project kicked off in the right direction with accurate and
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realistic budget expectations from your stakeholders and your project team members.
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Once you’ve kicked the project off, you then really need to monitor and manage that budget
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closely.
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So that’s the next sort of tip I’m going to give you.
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Set the budget up correctly at the start and then monitor and manage it across the execution
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phase.
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The first point on this is the team.
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You’ve got to get the team who actually invested in that budget themselves.
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If you are the only person on that entire project team who cares about the budget, you
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have a very, very low likelihood of achieving the budget that you’ve set out.
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You’ve got to get the team members to buy into the estimates that they’re putting together,
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to own the accountability of delivering on those estimates, and to watch their individual
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effort on each of the tasks leading up to achieving those deliverables for each of the
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projects.
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You’ve got to get the team engaged.
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They are the key part of making sure that you manage that project so that it’s going
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to come in on or under budget.
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Next thing is you get what you inspect.
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Whilst the team is out there and doing what they’re doing and being open and honest with
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you about how they’re tracking it’s progress and owning those estimates, you still need
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to go out there, inspect it.
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Never, you never get what you expect, you always get what you inspect.
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So make sure you’re going out there asking the probing questions to the project team
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trying to uncover more risk items, which could cause you grief along the line and putting
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those risk items in the register and managing them and mitigating them so they do not occur
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or to minimize the impact if they do occur.
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The basics.
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The basics on ensuring that you make sure you hit your budget is actually about the
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monitoring and control and management of that.
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It’s your weekly status reporting.
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It’s showing progress against tasks.
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It’s talking to team members on a weekly basis about how they’re going and if they’re not
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achieving what they set out to achieve for the effort estimate that they expected they
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would, then go and ask them what else they need to achieve that success.
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It’s working with the team members, getting out there and every day ensuring that they’re
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achieving the objectives and every week reporting on that in a status report.
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By merely putting up on the front of the rest of the project team how individuals are doing
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on their task, you’ll see that they’ll be quite motivated to ensure that they achieve
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those objectives on the effort estimates that they asked for.
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And if they’re achieving that, you’re going to get your budget.
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Getting a little bit fancy.
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Okay.
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You can do a lot of things as a project manager, play with a lot of numbers to ensure that
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you are, and communicate how you’re doing against your budget.
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Really, if you’re not doing the basics, getting fancy doesn’t help at all.
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So if you are doing the basics, you’re reporting on the task progress weekly, you can then
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afford to get a little bit fancier.
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Getting fancier is doing things like earned value calculations, doing the budgeted costs
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of the work scheduled against the actual cost of the work produced and performed, ensuring
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that you can calculate your schedule variance, your cost variance, your schedule variance
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index and your cost index to show people how you’re tracking against the project and what
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you intend to achieve in terms of your estimates to complete.
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For all your project manager needs, and next week’s white board session, please join us
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at ProjectManager.com.
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