Tips for Controlling Project Costs – Budgets and Actuals
To paraphrase a famous and inspiring quotation from Thomas Jefferson” “Eternal vigilance is the price for a balanced budget.” Of course, Jefferson used the word “freedom” rather than “balanced budget.” Still, the phrase fits. And I say this only because I am always asked if there is some “silver bullet” or “quick fix” to keep projects under control; the answer is no. If it were that simple, going over budget would not be a common problem across all kinds of projects in almost all business sectors. In the construction sector alone, an estimated 69% of projects went over budget by more than 10%. And this can be estimated empirically as well since we can see that many high-profile, large-scale projects in our cities often go over budget, and many homes remodel.
The reasons for going over budget are typically the same: 1) performing unauthorized work (aka scope creep,) which is related to poor understanding of the scope and client expectations; 2) developing unrealistic budgets, sometimes by staff not directly working on the project, such as salespeople; and 3) poor budget monitoring and control, which is the subject of this article.
Budgeting and Cost Control in Project Management
Even though, as project managers, we are well aware of the importance of balancing the difficulties of the triple constraint, which are scope, schedule, and budget, we get distracted with the day-to-day project tasks, plus the administrative activities and other demands on our time, that we lose track of the budget until it is too late. This can be especially problematic on large projects with large budgets because it seems like there is an infinite amount of available funds. Therefore, we go along until we check the budget and realize the actual costs associated with the project exceed the earned value. And by this time, it may already be too late to rectify the problem.
Tips for Controlling Project Costs
So, what can we do to avoid going over budget? The following tips can help, but please note that in some cases, such as having an insufficient budget or not having the right personnel working efficiently, then the best you can do. At the same time, monitoring is to mitigate the losses and give yourself, your organization, and your client time to look for a solution:
- If you are managing a small project, make the time to monitor the budget frequently, such as every two weeks. In a larger project, you can review the budget monthly and delegate the work to the team leader or assign a cost manager. You will still be accountable for the budget, but the cost manager can perform many monitoring and controlling tasks for you.
- Document and track the time spent on your project. If your organization does not use timesheets, create your reporting document with clear task descriptions and the maximum number of hours budgeted for each task.
- Use the three-line graph at least once a month indicating the actual cost (funds spent,) earned value (the amount of work performed expressed in currency,) and the planned value (amount of work you expected to perform in any given period.) The three chart lines will give you a quick reference to assess whether you are over, under, or right within budget.
Follow us on LinkedIn – Understanding eCommerce