This video examines typical organizational expectations around project budgeting, and the varying levels of information that comes from organizational finance departments. This information can be used as a means of understanding the logical level of detail with which you should plan your project budgeting process.
- Begin with the end in mind, it's the best way to think when it comes to a great many things in the project management world, as every step you take should get you closer to achieving your project outcomes. When it comes to project budgets, there are two major factors that need to be considered when building and managing your project budget. Determining the overall level of detail you'll be expected to manage, and how you will track personnel hours dedicated to your project.
The level of detail you need to collect is usually determined by the following factors. First and foremost, your company culture. Financial organizations are typically very focused on their spending patterns and trends. Research and development organizations usually do not share the same focus on spending details. The second factor is the presence of contracts. As a project manager you may not always work within a contract. However, when you determine the contract type you're working with that will dictate your budget management behavior.
Here are three primary contract types. Time and materials contracts require that resources and spending be tracked in detail, so they can be billed out to the client. Cost-plus contracts are similar to time and materials contracts. Costs have to be tracked in detail to bill to the client with the plus factor being a predetermined profit margin that is at or over an above costs. Fixed-price contracts may not dictate the same structure for cost tracking.
But your organization will typically want to understand spending against the revenue being generated by the contract. After contract type, the other major factor that can impact the way you track costs is your organization's model for tracking staff time. Some organizations, particularly consulting organizations, track staff time very tightly. As most use a profit and loss model, and build by the hour, understanding where staff time is being allocated is crucial.
Other organizations do not track labor costs so precisely. Many consider internal staff to be a fundamental cost of doing business and do not track staff time against individual projects. As a result, you may be asked to only track external resource costs, like contractors, where the organization's money is heading out the door. I have a couple of additional thoughts to add as we discuss the amount of cost tracking detail you're asked to manage. First, tracking people's hours helps you validate current estimates, and produce more accurate estimates in the future.
I would suggest tracking people's time to some degree, so you can understand how long, and roughly how much money is spent producing your project deliverables. Secondly, understand your business's financial reporting. If your project is a substantial part of some manager's budget, they're likely to want some budget detail. So, focus on your budget details, and you can ensure every step you take does indeed get you closer to achieving your project outcomes.
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.