Project Management

Check these six areas when managing your budget

Many project managers need to estimate the total cost of a project and then track the project expenditures to ensure they stay within the budget. They usually have automated reports from accounting that help them determine the total money spent to date.

If he doesn't have that, then the project manager will need to track the expenses manually in a spreadsheet. On most projects the analysis of actual expenses against budget takes place monthly since that's usually the frequency that you receive reports from the accounting systems.

When you compare actual expenses against your budget for each time period, you must first make sure you have a valid apples-to-apples comparison. There are a couple reasons why a project may look like it's having budget problems when it may really not be.

  • Some expenses may be budgeted for, but in another time period. If you paid for a major purchase this period that was originally scheduled for next period, then it shouldn't surprise you to see that you are technically "overbudget." This type of expense overrun will even out over time.
  • You may appear to be overbudget e if you're ahead of schedule. For instance, you may have paid a contractor overtime to get ahead of schedule. In this case, your estimated budget at project completion should show that the project would complete within its original allocated budget.

The following scenarios illustrate overbudget situations where the project really is in jeopardy. If you're trending overbudget because of these situations, you should take corrective actions.

  • Activities are taking more effort than estimated. This is the simplest case. You may have simply underestimated the effort required to complete some activities. If the trend continues, the project budget will be in jeopardy. You should raise this as a budget risk unless there are mitigating factors that will allow the overbudget trend to reverse.
  • Resources are costing more than estimated. You may have done a good job estimating the work required, but you may have underestimated the underlying labor or non-labor costs. For example, you may have estimated contract costs to average $75 per hour and they may be averaging $90 per hour instead. You'll need to seek ways to reduce the resource cost if you can. It's also possible that you can utilize fewer of the higher-priced resources. For example, perhaps you can reduce the hours allocated to the higher-priced consultants and offload the extra work to employees.
  • You missed some work in the initial estimates. It's very possible that you missed mandatory activities or mandatory expenses when you put the original estimates together. If the work or expense is required, but missed in the estimating process, you won't be able to invoke scope change management. In this case, a budget risk should be raised unless there are mitigating factors that will allow you to recoup the additional expense through a cost savings somewhere else.
  • You're not managing scope effectively. Perhaps your original cost estimates were perfect. However, as the project is progressing, you may be working on activities that are outside the approved Project Charter or business requirements. If so, the new work should stop until you can invoke scope change management. Even if the overbudget situation can be recouped somewhere else through cost savings, scope change requests should not be allowed to impact the project unless they were approved, along with the corresponding approval of revised budget and delivery timeframe if necessary.

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