A good budget management is an essential part of any business project. The budget itself provides guidelines, estimates expenses, and priorities on project execution. Without a budget, a project cannot be completed satisfactorily, and chaos is likely to occur. Therefore, it is a project manager’s responsibility to ensure the smooth sailing of the project, which should be started with budget preparation.
In a nutshell, a project budget is what drives the funding. It provides a basis for sponsors and stakeholders to understand how much the overall project would cost and when the funding is needed. A budget provides the financial information on whether a project is worthy to pursue or not.
Another important reason for budgeting is that it provides a framework for project cost control. Armed with a budget, the management would be able to discern whether a project is on track by controlling costs, including the dollar amount, the changes (if any), and the disposal schedule.
Naturally, budget preparation requires meticulous planning and engaged execution. In general, there are three crucial steps to managing a project budget.
First things first, running three estimates before committing to the final budget estimate.
Making sure that the budget is properly prepared and of the best possible estimates, it is recommended to run three estimates out of the five types of estimation, before correlating them and concluding in a workable one. You can choose any three of the popular five methods.
The five types of estimation are top-down, bottom-up, parametric model, expert judgment, and comparative or analogous. Each estimation model has its strengths and weaknesses, which must be discerned beforehand. For instance, for a bird’s eye view, use the less detailed top-bottom estimation. For high-level figures, use bottom-up model. For detailed and scientific calculation, use parametric model. In the expert judgment, the estimation is based on experts’ experiences of past projects. In the comparative or analogous model, data from past successful projects are used in the present project.
Second, carefully identifying project risks.
The more complex and the larger the scope of a project, the more risks it involves. A good project manager would carefully weigh the possible risks by considering inputs from stakeholders and analyzing data sets from various sources. In general, there are four major risks involved in a typical project: scope, scheduling, resource, and technology.
Scope risk refers to changes in scope due to scope creep, integration issues, defects, and dependencies. Scheduling risk involves all kinds of delays, including those at the vendors, natural factors, and due to human errors. Resource risk occurs when there are issues arising from outsourced sources and personnel. Technology risk will be experienced when there are delays, defects, and failures in hardware and software installation and operation.
Third, closely managing the project.
The role of a project manager is ensuring all team members are “on the same page” regarding the project execution. Every member must agree on the final estimates and be ready to get engaged in every step of the project. And the activities would require regular status updates and time and expense logging mechanism, where the costs can be measured in real-time and continuously validated against the budget.
This being said, the project manager must communicate, monitor, control, and provide feedback to every team member on a weekly basis. Remember that regular communication is an important staple of a well-executed project.
There is an adage, “You do not get what you expect; you get what you inspect.” Wear your inspector “hat” tactfully, so team members are not being micromanaged. As long as you can gently remind team members to keep on track by revisiting the project scope and comparing it with the project, it would be great.
Last but not least, managing project budget requires detailed execution, strong monitoring, and communication skills. By carefully preparing budget estimates, considering risks, and closely managing the project, you can make sure that the project is on or under budget.