Join Bob McGannon for an in-depth discussion in this video Selecting budget-reporting options, part of Project Management Foundations: Budgets.
Have you ever ordered a repair service to be conducted at your house, had the service provider show up, deliver the service, and then ask you for more money than you agreed to? If you were like me, it produces an unpleasant experience and makes you hesitate ever again to call that service provider. You don't want to be the service provider in that story. With estimates that are based on sound information, you'll know at any point in time how much you're spending and how much you have left to spend.
But you can only maintain an accurate perception of your budget throughout your project by having sound and complete budget reporting habits. Let me share some of these good habits. First, it is important you scan your budget and ensure you aren't missing some commonly overlooked items. Here are a few of the most frequent culprits: Labor cost increases. Over time, pay rises, and contract cost of living increases can add up and are often forgotten.
Next is the waiting time for resources. Though you may know you have to wait, the cost of having other resources idle during that wait time is an opportunity cost for the project. Lastly, overtime contingency costs. As scheduled pressures are likely on most projects, the cost of overtime needs to be considered. When you have incorporated these, you can consider the second good habit, creating easy to understand reports. First, you can deploy the cash outlay over time report I mentioned earlier.
It forms the basis for other reporting that will expand your budget status information. Next, compare the actual spending in your report to the work you've actually accomplished. For example, let's say you have $200,000 to spend. When you plot your actual cash flow on the cash outlay report, you'll quickly note that your actual spending was below what you had planned for. That would suggest you were under budget, however; on closer analysis of your cash flow, you see that you're under budget only because you're behind schedule.
Your cost data is suddenly put in a context. If you've accomplished 80% of what you wanted to complete and use 90% of the allocated budget you had planned, in reality, you may be over budget. The third reporting item I recommend is to produce detailed reports for areas where you are very cost sensitive. To provide this level of detail, I use a resource histogram. This is a diagram that compares budgeted estimates with actuals to see if there's any variance. In this example, you can see that cost and hours on October 10th were according to plan.
On October 11th, the worked hours exceeded your plan, and the cost exceeded beyond that, presumably because of overtime payments. You can quickly spot a trend when it's in this sort of diagram and can also efficiently show management what is happening and the budget implications on the project. Once you establish what reporting you're going to use, my next recommendation is to plan when you will provide budget status reports and communicate that plan to senior leaders. When building this budget status communication plan, be sure to consider how often you will be receiving spending information from your team.
And understand the limits of any labor and financial management systems you have access to in your company. One last recommendation and this is to be consistent. Have someone on your project team give you a budget report on a standard day each month. Remind them how important the information is and the accuracy that's required. Provide reports using a single format. Once you've had a look, distribute the reports so that everyone can see how the project is tracking and ensure that everyone interprets the data the same way.
This can help everyone to understand what's behind any cost pressures that pop up, and it'll help you to be more accurate in your project management approach.
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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.