It is perhaps considered one of the ‘driest’ elements of project management – looking after the budget. Certainly it seems to fill some people with dread, but I’m not really sure why that should be. There isn’t some black magic going on when you manage a project budget and you certainly don’t need a degree in accountancy to manage (even relatively large) budgets well.
But one thing is for sure: your project needs a budget. There are a number of very good reasons a project needs a budget, but I’ve picked my top three. Here they are.
REASON #3: You need to know when and where to take corrective action.
Establishing up front what you expect your project to cost is a good start. But having a good estimate of your total cost doesn’t mean that that’s how things will actually play out. And finding that your project is over- or under-budget isn’t something that should happen at the end in some sort of final reckoning.
We are used to a narrative that says a project delivered on-budget, over-budget or under-budget, but that is a picture of the end state – the status of the budget when the finish line was crossed. It misses that fact that at any point in a project’s life it may be over or under its expected budget (and that’s not necessarily a bad thing).
Being over-budget half way through your project might mean disaster. But it might mean that you’re three months ahead of schedule, but have had to pay labour costs sooner than expected due to the project moving faster. Being under-budget at any point is usually passed off as an indicator of success. But it could also mean that a big-ticket item has been delayed and the remaining funds might be seriously compromised.
The answer to all these issues is to forecast your spend. Not every day. Or even every week (depending on the length of your project). But not less than once a month. Because by forecasting your remaining project spend, you know in advance if you have enough money to finish the job.
If you have established your budget at the outset, this is even easier (and if you didn’t estimate at the outset, it’s still not too late). You can work your way down the budget and establish how you’re doing. For each line item that is complete you can (satisfyingly) cross it off your budget. Done. For those that aren’t complete though, you need to ask: how much more do I need to spend to get the job done?
We are used to asking how much a job will cost and leaving it at that, but you should regularly ask “how much do I need to spend from here?” If it is more than you have in your budget for that item, then you have an early warning. And that obviously means you can address an issue before it becomes an actual issue.
In summary
Building up a picture of your budget, spend-to-date and forecast can be simple to do and tell you a lot about how your project is performing. Most importantly though, your budget tells you where to focus your attention to ensure you have no nasty surprises. And that is what project management is all about.
Skip back to: Reason #1: You need to know – before you start work – if you can afford to do this.
Our Project Cost Plan template will help with all of this, it really will. Or if you really want to get into it, we highly recommend you check out Chapter 6 of our book.
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Image by Pixabay.