The video addresses the typical negotiation tradeoffs, and introduction of risk, that comes with adjusting the initial budget for the project. It also addresses accommodating the budget constraints in project management approaches.
- Budgets aren't always good news but we have to share that truth as early as possible. Bad news ages like milk, not wine. We need to deal with the good and the bad of the project budget to protect your integrity and the integrity of your project. I have two 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. 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 want to add contingency dollars to address potential risks you should clearly communicate the need for contingency dollars as a separate budget item, detail when those contingency dollars may be needed, and highlight the task areas where you wish to use the contingency budget. Allocating a contingency budget differs from project to project, based on your sponsor's main concerns. If your sponsor's main concern is spending you need to make cost consideration your number one focus.
If time is their number one priority, you need to manage your budget so that you stick to a completion date. You might allocate contingency dollars in this instance to get resources to help you stay on schedule. Budgets that surprise your sponsor and discussing contingency dollars can be difficult conversations. 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's agreed to now will set your project on a particular course. You don't want to have to make a financial U-turn across four lanes of traffic to get your project completed. Here are tips to make those difficult conversations a little easier. First, use different estimation techniques to validate your budget. Determine if the budget constraints enable you to practically deliver the project's scope.
Second, confirm the costs for all facilities and materials you're going to need. And finally, try to find data from prior projects and current projects if you're using similar resources and facilities, share how you've developed 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've done that, you'll be in the best position to say you'll stay on track.
Note: This course follows the latest guidance from Project Management Institute, Inc., as outlined the PMBOK® 6 Guide.
- Recall best practices for project budgeting and estimation.
- Distinguish common estimation approaches used to build project budgets, and understand when to use them.
- Identify best practices for budget expectation management, while utilizing sound budget refinement techniques.
- Describe and explore agile project budgeting techniques.
- Review various approaches for correcting project budget overruns.
- Review sound budget reporting approaches, including how they can be used to report project status.
- Recognize the issues and changes that can put a project budget in jeopardy.