Project Cost Management Tips: Keeping Your Project Budget Under Control


Transcript

0:10
[Musice Intro]
0:11
>>Hi.
0:12
I’m Devin Deen, Content Director here at Project Manager.com.
0:14
This week’s white board topic is about keeping your projects under budget.
0:17
Now I wish I could give you some secret sauce to sprinkle over your project team members
0:21
or your project budget, your project schedule and plan, just to make it all work for you
0:25
and ensure that it does sort of return a project that’s under budget, but really, there is
0:29
no secret sauce for this.
0:31
However, there are some fundamental things that you can do as a project manager to make
0:34
sure that you do manage and control that budget with scheduling and make sure that you deliver
0:37
that project on budget or at least under budget.
0:40
I’d like to go through some of those with you today.
0:43
So, the first thing to remember, it actually starts at the start.
0:47
You’ve got to have that budget set up correctly at the start of the project.
0:50
Generally speaking, when you’re doing the initiation phase of a project, you’re doing
0:54
a planning estimate, a budgetary estimate.
0:57
So, it’s something around a plus 25%, minus 10% of what your actual project budget might
1:02
be.
1:03
But you’ve got to get that right from the start.
1:05
So, after you finish your initiation phase, get your feasibility study done and your business
1:09
case approved, then you can be a little bit more precise on what that project’s going
1:12
to be and start to apportion off the total project budget for executing on that project
1:18
and the contingency that you’re going to hold yourself as management reserve.
1:22
Good estimates are the key to that.
1:24
I usually run three different types of estimates before I actually commit to a project budget.
1:29
First one I do is a top down, parametric estimate.
1:32
So I use past projects, I use different parameters that project is going to deliver, things like
1:37
how many systems you’re going to have to integrate with or how many end users are going to use
1:42
your application.
1:43
Multiply that by the number of effort, a task required to achieve that deliverable, and
1:47
out pops your answer.
1:48
That’s your basic top down estimate using parametric techniques.
1:52
Another technique I use is a bottom up estimate.
1:54
So I get the experts who’ve done it before, get them in a room together, and have them
1:57
list all the activities that they need to go through to actually achieve each of those
2:01
deliverables.
2:02
Sum up the bottom of the list and you’ve got your bottom up estimate.
2:06
The last estimate I do is I organize those tasks from both the top down and the bottom
2:09
up estimate into a project schedule, assign resources, blow those tasks across time, and
2:15
see how they’re going to integrate with one another and then, once again, add up the estimates
2:19
that the project schedule has given me.
2:21
I correlate the three different answers from each of those estimating techniques to give
2:26
me a better feel of the variance between those and a better feel of what that budget’s going
2:30
to be.
2:31
Then, with the whole project team, we go through and identify those risks.
2:36
The risks is what’s going to kill you on the project.
2:38
It’s really where your budget’s going to get out from underneath you.
2:40
If you don’t identify the risk at the start of the project and then periodically revisit
2:45
that risk register as you’re executing, you’re going to run into a lot of issues.
2:50
Issues cost you money, they cost you time, they cost you heartache and grief.
2:54
They’re always going to cost you time back with the stakeholder and, unfortunately, if
2:58
you let your project issues get away from you, you’re going to have to go back to the
3:02
well and ask for more money.
3:03
And no project manager wants to do that.
3:05
So once again, identifying your risk at the start of the project with your project team
3:09
will really help you get the project kicked off in the right direction with accurate and
3:15
realistic budget expectations from your stakeholders and your project team members.
3:21
Once you’ve kicked the project off, you then really need to monitor and manage that budget
3:26
closely.
3:27
So that’s the next sort of tip I’m going to give you.
3:29
Set the budget up correctly at the start and then monitor and manage it across the execution
3:34
phase.
3:35
The first point on this is the team.
3:37
You’ve got to get the team who actually invested in that budget themselves.
3:40
If you are the only person on that entire project team who cares about the budget, you
3:44
have a very, very low likelihood of achieving the budget that you’ve set out.
3:47
You’ve got to get the team members to buy into the estimates that they’re putting together,
3:51
to own the accountability of delivering on those estimates, and to watch their individual
3:56
effort on each of the tasks leading up to achieving those deliverables for each of the
4:00
projects.
4:01
You’ve got to get the team engaged.
4:02
They are the key part of making sure that you manage that project so that it’s going
4:07
to come in on or under budget.
4:10
Next thing is you get what you inspect.
4:11
Whilst the team is out there and doing what they’re doing and being open and honest with
4:15
you about how they’re tracking it’s progress and owning those estimates, you still need
4:19
to go out there, inspect it.
4:21
Never, you never get what you expect, you always get what you inspect.
4:24
So make sure you’re going out there asking the probing questions to the project team
4:27
trying to uncover more risk items, which could cause you grief along the line and putting
4:31
those risk items in the register and managing them and mitigating them so they do not occur
4:35
or to minimize the impact if they do occur.
4:38
The basics.
4:40
The basics on ensuring that you make sure you hit your budget is actually about the
4:44
monitoring and control and management of that.
4:46
It’s your weekly status reporting.
4:48
It’s showing progress against tasks.
4:50
It’s talking to team members on a weekly basis about how they’re going and if they’re not
4:54
achieving what they set out to achieve for the effort estimate that they expected they
4:59
would, then go and ask them what else they need to achieve that success.
5:03
It’s working with the team members, getting out there and every day ensuring that they’re
5:08
achieving the objectives and every week reporting on that in a status report.
5:13
By merely putting up on the front of the rest of the project team how individuals are doing
5:17
on their task, you’ll see that they’ll be quite motivated to ensure that they achieve
5:21
those objectives on the effort estimates that they asked for.
5:24
And if they’re achieving that, you’re going to get your budget.
5:26
Getting a little bit fancy.
5:28
Okay.
5:29
You can do a lot of things as a project manager, play with a lot of numbers to ensure that
5:32
you are, and communicate how you’re doing against your budget.
5:35
Really, if you’re not doing the basics, getting fancy doesn’t help at all.
5:39
So if you are doing the basics, you’re reporting on the task progress weekly, you can then
5:44
afford to get a little bit fancier.
5:46
Getting fancier is doing things like earned value calculations, doing the budgeted costs
5:50
of the work scheduled against the actual cost of the work produced and performed, ensuring
5:54
that you can calculate your schedule variance, your cost variance, your schedule variance
5:58
index and your cost index to show people how you’re tracking against the project and what
6:06
you intend to achieve in terms of your estimates to complete.
6:09
For all your project manager needs, and next week’s white board session, please join us
6:13
at ProjectManager.com.
Previous What financial tip would you give your 20-year-old self?
Next Tips on Financial Aid