As a project manager you should never be in a situation when you run over budget and you aren’t expecting it. Tracking of a project budget, similar to tracking time, will allow you to see in advance whether a project is forecast to go over budget. If half of the job, 50%, has been completed and 75% of the budget has been spent you are highly likely to be on track to “blow the budget”. Tracking budget at a monthly level is a good start to keep informed of your project’s financial status. A helpful method to get a project budget forecast is to ask the company or person who is doing the work to provide you a financial forecast at the start of the project.
Before the start of a project in the cost build up you should allow for some contingency in the project budget. It is important to make it very clear that contingency is for just that, if something happens outside the scope of the budget. If you have the option of not letting your contractors’ know that you have contingency available, this is a sensible approach. Set the expectation for people working for you at the start of a project that under no circumstances should they be going over budget without you, as the project manager, being aware well in advance.
How much contingency to assign is a harder question, as with many things it is a balance. In my experience to date I have found that allowing about 10% contingency will cover you in most circumstances. With smaller tasks expected to only take 2 – 5 days, allowing 1 – 2 days of contingency seems to be appropriate, particular if there is some uncertainty in the right method for the task. The biggest thing that requires me to allocate contingency money to is not thinking through the task in enough detail. Specifically for a job that might require data collection, make sure you allow for time for preparation and data compilation as well as just for the actual collection.
If you have identified that the project will not be completed using the existing method and budget, including your contingency, you have a few options:
- Reassign resources to a lower cost resource.
- Reduce the project scope.
- Seek more funding.
Each of these options has benefits and drawbacks. In general you may be able to reassign a lower cost resource to the job but it will take longer to do it. In this case although you need to compromise on delivery date, the project will still come in under budget.
If it is not an option to extend the project completion or due date and you still need to reduce budget you should then consider removing some items from the project. This is where identifying the important objectives of the project adds considerable value because you can then have a pre-agreed criteria that is important to the stakeholders. An example of this would be if you were providing a report to a client, with accompanying calculations or other material. Instead of presenting the accompanying material in a report format, which would take some time to do properly, you may elect to provide the material electronically in its original format. This option is not perfect but it would provide the client with the main deliverable they wanted, a report with supporting material on budget.
Seeking more funding may be a perfectly valid option, particularly if you raise the requirement for increased funding and the reason in advance with the client, or your internal approvers. At the start of a project it is worth identifying what type of issues could increase budget, and clearly state the assumptions that you are working off. This provides you with a basis to inform clients of increase workload.
As a project manager tracking progress and maintaining clear communication with your clients and, contractors, is important in managing time and budget.