Join Bob McGannon for an in-depth discussion in this video Determining the correct level of budget detail, part of Project Management Foundations: Budgets.
Begin with the end in mind. It's the best way to think when it comes to a great many things in the world of project management. When it comes to project budgets, there are two major factors that need to be considered when building and managing your project budget. Determining the overall level of detail you'll be expected to manage, and how you will track personnel hours dedicated to your project. The level of detail you need to collect is usually determined by the following factors.
First and foremost, company culture will dictate the level of budget detail required. Financial organizations are typically very focused on their spending patterns and trends. Research and development organizations usually do not share the same focus on all of your spending details. The second factor, which dictates project detail, is the presence of contracts. As a project manager, you may not always work within a contract, however when you do, the contract type you are working with will dictate your budget management behavior.
Here is what happens with three primary contract types. Time and materials contracts require that resources and spending be tracked so they can be billed out to the client. In this instance, you will likely be asked to maintain budget and cost data at a detailed level. Cost plus contracts are similar to time and materials contracts. Costs have to be tracked in detail to be billed to the client, with the plus factor being a predetermined profit margin that is added over and above cost.
Fixed price contracts may not dictate the same structure for cost tracking. But, your organization will typically want to understand spending against the revenue being generated by the contract. You may not require the same detail as a time and materials contract, but are likely to be asked to track specific cost elements like procurement costs or percentages of people's time dedicated to your project. After contract type, the next major variable that can affect the way you track costs, is your organization's model for tracking staff time.
Some organizations, particularly consulting organizations, track staff time very tightly. As most use a profit and loss model and bill by the hour, understanding where staff time is being allocated is crucial. In this environment, you not only may be asked to track staff time against your project, but maybe even against the task or tasks your team member worked on. Other organizations do not track labor costs so precisely. Many consider internal staff to be a fundamental cost of doing business, and do not track staff time against individual projects.
As a result, you may be asked to only track external resource costs, like contractors, where the organization's money is heading out the door. I have a few additional thoughts to add as you discuss the amount of cost tracking detail you are asked to manage. First, tracking people's hours helps you validate current estimates and produce more accurate new ones. I would suggest tracking people's time to some degree, internal to your business or not, so you can understand how long and roughly how much money is spent producing your project deliverables.
Secondly, understand your business's financial reporting. If your project is a substantial part of some manager's budget, they are likely to want some budget detail. They may not, however, warn you in advance of the need for budget and spending information. The last thing you want to do, is to have to answer a manager's question by going back to your team and saying, last quarter, how much time did you spend on this part of this project? At best, the answer to this question will be a very fuzzy guess.
So, to determine the budget detail, you need to track. Understand your company's culture for tracking costs. And understand if any contracts are associated with your project.
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- Discovering costing standards
- Examining capital and operating costs
- Assigning costs to resources
- Communicating your budget
- Recovering a bloated budget
- Addressing budgeting issues<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.