Videos Project Cost Management Tips: Keeping Your Project Budget Under Control Admin 3 months ago 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.