Join Bob McGannon for an in-depth discussion in this video Prioritizing budget vs. scope elements, part of Project Management Foundations: Budgets.
The one thing you can be assured of when you establish your project plans and spending projections, is that it will never come to fruition exactly as you plan. There are way too many variables in the dynamics of the average project. The trick is to know how to adopt and respond to those changes. And this is often done through management of scope. Scope defines the activities that need to be performed to achieve the business benefits of a project. These activities require resources, time, people, equipment, et cetera.
You can redefine or adjust your project in terms of its scope. The most powerful way to respond to budget status changes is to examine the trade-offs between budget and projects scope. Let's discuss some common scope and budget adjustment approaches. First, you can be asked to increase scope, to deliver more features in your project. In this instance, there are several questions you should ask. What's the budget impact going to be? Could I get more funding to accommodate an increase in cost? How can I balance this scope increase within my schedule.
Are there cost impacts of delivering the project with greater scope, but at a later date? The answers to these questions will help give you options for accommodating the additional scope. You can then present these options to your sponsor and key stake holders. Second, you maybe asked to change your budget to reduce risk. In this instance, you may produce additional scope items to address a specific risk element. Like ensuring you meet government compliance requirements, or provide a special product of service requested by your most important customer.
In most cases, scope changes to address risk involves an increase in scope. However in other instances, you might reduce scope to address a risk item. For example, you may be building a new computer system and you decide to use the latest hardware available on the market to maximize the capabilities of the system. As the project progresses, problems with the new hardware are published in the media. To avoid the risk of having to address those issues, you may reduce scope, produce fewer capabilities to avoid having to use the latest but problematic hardware.
Lastly, you may be asked to reduce scope to balance cost overruns or because your overall budget needs to be cut. If this happens on your project, I suggest you take your commitments and prioritize them from top to bottom. For a larger project I'd do it in quarters, the first 25%, second 25% and so on. From there, determine what it's costing you to satisfy those requirements. Some requirements may be expensive to address.
Take a look at those first. Compare the potential benefits to the business to what it will cost to actually produce those benefits. Then ask yourself, what's going to give your client the most benefit for the least amount of cost. Identify the biggest bang for your buck. If you look to reduce the scope of your project, you will want to ensure you're reducing the expenditure required appropriately. This is called de-scoping. Most people will de-scope and believe that these items will form the basis of future projects.
As a side note, what I describe here is often referred to as phase two planning. It should be noted that the phase two scope items will have to be cost justified against the business value they provide to the organization. It's advisable to alert your customer that just because you have defined phase two items, there may not be a guarantee that a phase two project will be delivered. There are always trade-offs in any scope change. Your job is to help your organization achieve the best outcomes through your project with a budget you have available to you.
Diligently examine alternatives. Provide options with impacts to scope and budget, and you will be well positioned to assist your project sponsor to make sound business decisions regarding 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.