Many project managers, I’m sure, do lots of things right when managing their project budgets…and I’ve seen many project managers flounder in this aspect of their job – sometimes resulting in a failed or canceled project. And PMs, customers often come into a project engagement with some pre-conceived notions about what it takes to oversee the project financials and to keep them on track. In this two part series, I’d like to discuss what I believe are four misconceptions about managing project budgets and forecasts.
No matter how closely you manage it, some budgets will go out of control. I am a firm believer that there are runaway budgets out there that, given the proper management and oversight, can come back in line – at least to some sort of acceptable point. The issue is to plug the dam at some point. The key is to figure out why the project budget is being expended so quickly and work on corrective action. The earlier you take action, obviously, the less out of control the budget will be and it should then be easier to correct. If it takes a temporary work stoppage to figure things out and plan and implement some corrective action, do it. it’s far better to halt work for a couple of weeks than to lose a project entirely.
As the PM, if you’re taking over a project that is out of control or even if you’ve let one get out of control due to lack of oversight, stop where you are and prepare to take drastic action. Freeze expenses immediately, forecast all expenses going forward for every week left on the project (yes, do it to that level of detail), track those planned expenses weekly using actuals against forecast, and dutifully report that information to your project team, your executive management and the customer on a weekly basis.
You may never get the budget fully back on track, but your extreme oversight will likely keep it from getting any worse and will be very appreciated by both the customer and your organization.
Your project team can be trusted to charge their time wisely. Are project team members are smart, talented, and experienced professionals. We expect them to be accurate with their work and we expect them to be accurate in how they charge their time. The truth is, very few of us actually meticulously track our time during any given week – we usually throw our timesheets together at the 11th hour because we’re busy with real work. News flash – that’s what our project team members are doing, too.
Just like the PMs, these team resources are working multiple projects at a time. What’s different about your all of your team members is that they aren’t responsible for the project budget. All they have to do is charge their time to it and likely show their direct supervisor that they are as close to 100% utilization as possible. As the PM, you must make them aware of the project budget and the ongoing forecast on a regular basis. If they know you’re tracking it closely and they know how much time they’re supposed to be charging to the project, then that’s what they’ll charge. If they think you aren’t watching the budget closely, then you’ll be the PM who gets their ‘grey’ hours. That’s those 5-6 hours every week that you simply can’t account for but you know you worked them so you have to charge them somewhere. Your project team members will charge them to whatever project’s budget isn’t being watched closely. Make sure that’s not your project.
Financials scare the project customer. When the project budget comes up as a discussion item with the customer, it’s usually not to give them good news. That’s especially true if it’s not been something that was part of ongoing discussions or project status calls. If it’s the first time you’re talking to the customer about the budget, it’s probably to tell them something is wrong.
The budget and ongoing forecast updates are items that should be in front of the customer throughout the engagement. If it’s good news, they’ll see that you’re managing the project well. If it’s not such good news, they can help you and your project team make adjustments to try to get the project budget back on track. And it’s always easier to fix budget issues if they’re not too far gone yet. Keep the budget status in front of your delivery team and in front of the customer from the outset through deployment and you’re far more likely to remain within that acceptable +/- 10% range.
If the project has to be done, then the budget doesn’t matter. Some project managers will go through a project thinking that since their particular project is critical for the customer or critical to their own company then budget doesn’t matter. If it’s over budget and the customer HAS to have it, they’ll pay and they won’t care about budget status. Or if it’s over budget and it’s critical to your own company, then your company will cover the overage.
That simply is not true. There may be instances of that, but there’s no guarantee that any project is that important that budget won’t matter to the delivery organization or to the customer. I once took over a trouble project where the client was a major government agency and I was led to believe that if it went over budget the agency would just request and receive more funding for the project. It was well over budget when I acquired it and the bleeding never stopped – it just got worse.
Eventually I – and my executive management – was blindsided when the government agency simply canceled the project. This was after already spending more than $1.2 million on it and nearly 18 months of effort. It can happen anywhere, anytime. Surprise!
Allowing for enough upfront planning will make budget management secondary. Some believe that if enough effort is put into really estimating the project, really analyzing potential risks thoroughly enough, meticulously going through requirements documentation with your client to get very detailed requirements, and always planning well for user acceptance testing and deployment, then ongoing detailed budget management is really just a secondary effort. An afterthought. I think most experienced PMs – and by that I mean PMs who were lax in their budget management and found out about this untruth the hard way – would tell you that this simply is not true. There are too many variables on every project we manage – no matter how big or how small. Too many things that can and will go wrong or at least alter your well-planned course to take budget management too lightly. The key is to take that very early estimate, map it out into a very detailed week by week budget and follow it closely. If you watch your budget carefully, it can never get too far out of line. And it’s always easier to fix a 10% budget overrun that is caught early than it is a 40% or 50% budget overrun that is realized halfway through a project.