Use These Four Techniques to Manage Your Budget

Sunday, July 10, 2016, AM | Leave Comment

A project by definition will always have a limited timeframe and a budget. The project cost estimate is the amount of money you expect to spend on the project. The “budget” is how you track the money in your company financials.

For instance, your total estimated cost may be $100,000 USD. However, the budget may have $70,000 in capital funding and $30,000 in expense funding.

The money may be further divided into labor and non-labor categories and it may also be tracked by major work packages in your work breakdown structure (WBS).

Here are four tips and techniques to set your budget and measuring progress against it.

Use These Four Techniques to Manage Your Budget

  1. Include an estimating contingency

    Sometimes you can provide a cost estimate for your project after your planning process. Often the project budget is fixed before you are assigned.

    However, even if it is already assigned, you should create an independent estimate of the cost.

    Your estimate should also include an estimating contingency to represent estimating uncertainty and risk.

    For example, if your base budget estimate is $100,000 and you think it is +/- 15%, your final estimate should be $115,000.

    If your budget is fixed and your estimate (including contingency) is higher, you should start immediate discussions with your sponsor on how to add more money or de-scope come work.

  2. Plan ahead

    If your estimating and financial management is going to be complex, create a Financial Plan. This will allow you to consider the process you are going to use to manage the project financials, plus give you a detailed view of all of the expenses that are going to arise and when they will be incurred.

    Make sure you have a draft schedule so that you know the cost of every task to be completed.

    In this way, you know for every month in the project the amount of money that will be consumed.

    Make sure that the amounts in your Financial Plan and schedule align with the budget set. That way, you know that you have a good chance of delivering within budget from the outset.

  3. Track expenses

    From the minute you’ve set the budget, you need to start recording the actual costs of the project. This includes the actual cost of your time, your staff, contractors, equipment and materials.

    If you don’t have a financial system, use a spreadsheet to record the daily cost of the project.

    If you want to get specific, also record the costs against the tasks in your schedule.

    By accurately recording the project costs throughout the entire project, you will be able to ensure you keep on track.

  4. Keep on track

    To check whether you’re on track, monitor your actual costs vs. your planned costs and identify any deviations.

    If you’re always under your planned monthly cost, then you’re likely to deliver your project under budget.

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This column is © copyright to www.Method123.com and originally appeared in their weekly project management tip newsletter.

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