Join Bob McGannon for an in-depth discussion in this video Finalizing and communicating your budget, part of Project Management Foundations: Budgets.
In the movie A Few Good Men, Colonel Jessup, played by Jack Nicholson, uttered a famous quote. "You can't handle the truth." Sometimes that is the case with a project budget. It isn't always good news. However, protecting your integrity, the integrity of the project, and the business you support, is important. I have 2 golden rules when it comes to communicating your budget. Don't pad things and be prepared to have difficult conversations.
Let's talk about padding your budget first. Padding your budget is when you put extra costs, inflate costs or otherwise try to expand your budget without a distinct outlined rationale for inflating costs. A better way to manage this is to utilize overtly discussed contingency dollars instead. There's no point presenting increased, decreased or otherwise unrealistic budget estimates to your sponsors.
It doesn't do anyone any favors. You should base your budget on accurate information that you've drawn from your work breakdown structure. If you feel you need to add contingency dollars to address potential risks, you should, clearly communicate the need for contingency dollars. Detail when those contingency dollars may be needed, and highlight the task areas where you wish to apply the contingency budget. When considering asking for contingency dollars for your budget, there are a couple of questions you should consider.
What is the most important aspect of the project in my sponsor's eyes? What is their driver? Is it scope, cost or time? For example, if your sponsor's main concern is how much money is being spent, you need to make cost considerations your number one focus. If time is their number one priority, you need to manage your budget so you stick to a completion date. You might allocate contingency dollars in this instance, to get additional people that can help you stay on schedule.
So, don't pad your budget, and be diligent about asking for and allocating contingency dollars. Admittedly, discussing contingency dollars with your sponsor can be a difficult conversation, which brings me to my second major suggestion. Do not be afraid of having the difficult, truthful budget conversations you need to have. Especially when you're finalizing the budget for your project. Remember, the budget that is agreed to now, will set your project on a particular course.
Sure, you'll revisit budgets and estimates along the way, but you don't want to have to make a financial u turn across 4 lanes of traffic to get your project completed. Here are a few tips to make these difficult conversations a little easier. First, use a number of different estimation techniques to validate your budget, like the ones we've discussed in previous videos. Work out if the budget constraints provided to you will actually meet the scope of the project. Second, confirm the costs for all facilities and materials you're going to need.
Changing costs later because you did not do your homework will dilute the significance of well intended pleas for additional money and will likely reduce your sponsor's trust in you. Finally, try to find data from prior projects and current projects if you're using similar resources and facilities. Share how you've worked out and verified your budget allocations by using data from other projects. Ultimately, you're managing the project for your sponsor. If they don't agree with what you're doing or haven't bought into the budget, your project will be significantly at risk.
So, when you're finalizing your budget, be open about how you've come to your estimates. Overtly share where you think contingency dollars are needed, and negotiate in good faith. Then, when you're done, you'll be in the best position to invoke confidence in your ability to stay on track.
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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.