Join Bob McGannon for an in-depth discussion in this video Recovering a bloated budget, part of Project Management Foundations: Budgets.
When it comes to managing finances, there's a fact we all need to embrace. Just because you still have checks in your check book, it doesn't necessarily mean you still have money in your account So it goes with projects. Projects by their very nature, are always changing. So, your budget might need to be adjusted as you move through the project life cycle. So you don't try to write checks you cannot pay against. In an extreme case, you may find yourself with a bloated budget. A bloated budget is when you can see that your actuals are coming in way over forecast.
Maybe you haven't yet completely blown your budget. But you're quickly heading for financial disaster. Often, this will occur between half and 2 3rds of the way through the project. When it's apparent things are not correcting themselves. And you aren't tracking as you should be. The good news is that because you're still going through the project you may be able to get your budget back on track. But recovering a bloated budget takes a lot of hard work. Let's look at the steps required to achieve budget recovery.
The first thing is to look at what's caused the bloating. Here are some common causes for a bloated project budget. First, you've found complexities in the project that you didn't anticipate. In this case, you should re-evaluate the project in the context of this richer understanding. For example, you've determined that the project to refurbish an old building is going to be more expensive than anticipated because of asbestos. After this discovery, the concept of the refurbish the building project, may give way to leasing another building.
Or constructing a whole new building instead. Second, it may be because a number of invoices have hit your account at the same time. And you didn't have appropriate financial tracking in place. Here's the reality. In this case, you can't continue doing what you're doing. You need to go back to your prioritization. And separate your absolute scope needs from the wants. Spend the time identifying the potential impacts, mitigation strategies. Or at least understand the financial impacts of changes to your project so you can discuss alternatives with your sponsor.
A third cause of a bloated budget is when management changes your budget amount. This can restrict what you're doing with the project. And can make your new budget versus actuals, look bloated. For example, say you're working on a project with a budget of $15,000. You're halfway through the project and you've spent $8,000. So you think you're tracking nicely. Then, management tells you that your overall budget has been reduced to $10,000, instead of the original $15,000.
Suddenly, it's Houston we have a problem. In this case, you need to challenge the fundamentals of the project. Push back and ask if management really wants to do this project with this amount of money. Or, do they want to do some pieces of the project within the new budget limitations? Here are some cost-cutting options that you can consider. If you're making business process changes, find out how much time and effort it's taking to drive the changes. You could try taking out some of the project scope that involves more complex and costly business change.
Deliver something smaller that fits your budget, but still provides value. If you have contractors, you could cut them significantly. Or, you could leave a limited number of contractors on the project, to teach your internal employees to do the work that needs to be done. In addition, you can consider whether an agile project approach could work. Here, you break down a project into tiny pieces that can be delivered separately. It can be an option to recover a bloated budget. Based on the nature of the project. As the business gains the benefits from each piece, you may be able to get budget reallocated to produce additional scope going forward.
If you want to know more about agile projects. Check out my agile project management course, right here on lynda.com. Remember, a bloated budget is potentially recoverable. Just don't keep digging when you're in the hole. Stop and reassess where you're at. What's the cause? And how you can turn things around before the end of the project. Management and control is the key.
Lynda.com is a PMI Registered Education Provider. This course qualifies for professional development units (PDUs). To view the activity and PDU details for this course, click here.
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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.