Budget overruns happen so frequently in project management that they have almost become the norm. It could simply be optimism bias but it could also be poor management of the project budget. Either way it’s always worth looking for way to better managing your project budget and that’s where these tips could come in useful. After all, very few businesses have an unlimited budget, and when project scope creeps in or changes are required, it can result in, quite simply, too much money being spent. This is bad news for any business, as clients and project stakeholders will see a budget overrun as a failure. On the other hand, get it right, and you will have achieved what everyone was planning for, which will enhance your reputation. Let’s have a quick reminder of five of the best ways to manage your project budget:
Make sure everyone is in-the-know and accountable
A key part of staying on budget is making sure all team members know the current budget status. The project budget forecast is something that the project team needs to be informed about. After all, a team that is well-informed is a team that is empowered. If your team is aware of the budget status, they will be more inclined to watch their project charges, and will charge less for extra ‘grey area’ hours.
Develop relevant KPIs
The next tip in managing your project budget effectively is establishing key performance indicators, otherwise known as KPIs. KPIs will help you to determine how much has been spent on a project, as well as how much the actual budget differs from what was initially planned, and much more. Let’s take a look at some of the most commonly used KPIs that are vital when it comes to successful budget management in any project:
- Return on investment (ROI) – This shows the profitability of a project, as well as whether costs have been exceeded by the benefits.
- Planned value (PV) – This is the budgeted cost of work scheduled. Essentially, this is the estimated amount for project activities that have been planned.
- Earned value (EV) – This is the budgeted cost of work that has been performed.
- Cost variance (CV) – This indicates if the estimated cost of the project is lower or greater than the baseline that has been set.
- Actual cost (AC) – This shows how much money you have spent on the project to date. It can also be referred to as actual cost of work performed, i.e. ACWP.
Budget for surprises
Projects rarely go to plan, and there are often surprises along the way. Therefore, you need to build in contingencies for the unexpected if you are to stay on budget. Factor in things that are outside of your control, for example, currency exchanges, financing, resources, and external environmental considerations that could impact the price of supplies.
Understand the true needs and wants of your stakeholders
What stakeholders claim to want and need in a project aren’t always as straightforward as it seems at the beginning. This can lead to expectations and goals that have not been identified on both sides, which causes projects to run over budget. Project managers need to make an effort to understand the true needs and wants of stakeholders from the very start.
Take a project management training course
It doesn’t matter how much experience you have, you are never too experienced to learn from the right project management course and continuous professional development. Courses may cover areas you are very familiar with but it can be that small nugget of new information that could make all the difference to your skills, and help you discover a new approach for managing your project budget.
