Simple Ways to Keep on Budget

Co-written with Edwin Gordon

Slalom Consultant Carl Manello

Carl Manello is a Solution Lead for Program & Project Management based in Chicago who enjoys exploring how to tightly couple the art and science of project delivery with business operations.

“Nothing is easier than spending the public money. It does not appear to belong to anybody. The temptation is overwhelming to bestow it on somebody.”
–President Calvin Coolidge, 30th President of the United States (1923–1929)

Unlike President Coolidge’s public money, a project budget does belong to somebody: the project manager. And while the temptation may still be there to bestow that budget on everything that comes across your project’s path, as the PM you must master the practices for managing the spend within your limits. Here are four proven practices that will help you define and manage your budget more effectively.

1. Define your Budget

The basics of a project budget are usually fairly predictable. The major components are time & expense, hardware, and software. The less impactful but equally important are those like depreciation, taxes, and shipping. To determine how to calculate these line items, follow the practices in place within your organization. However, to ensure a robust financial plan, check to see that you have considered the following questions:

  • Does your budget (and schedule) have risk appropriately mitigated to avoid significant timeline and cost deviations?
  • Have you obtained buy-in on the budget from the management team of those that will be doing the work? In other words, did your estimates all come from the right source? Were they appropriately vetted and approved?
  • Are all estimates documented with assumptions to allow for variability and to ensure accountability later in the project?
  • Do you have vendor quotes for all hardware and software?
  • For professional services do you have quotes, SOW’s documenting costs, and the services to be performed?
  • For internal employees, have you confirmed chargeback rates and policies for everyone in your resource plan?

These are just a few questions that will help you refine your budget and prevent surprises later on. As you are able to squeeze risk out of your budget, you will find that you have a better overall plan to work with.

2. Know your Variance Thresholds

Most companies have acceptable variance thresholds. If a project has been clearly defined, formal variance thresholds for spending (for example, ±10%) may be quite narrow. When there are no formal thresholds, you will need to be proactive.

Clarify expectations with your sponsors and be sure to document decisions. A verbal confirmation is insufficient. Whether your client has formal or informal thresholds, set expectations and document these details for your team so that there is no confusion later on. Clarifying acceptable variance thresholds proactively–before there is an issue–is crucial to your ability to control expectations.

Slalom Consultant Edwin Gordon

Edwin Gordon's project and program management experience includes full lifecycle software implementations, business process improvement, change management, training, Financial Services, Telecom, Electronics, CRM, Purchasing and Procurement, Contact Centers, Accounting, Security and Compliance.

3. Define Budget Processes and Tools

The third guideline is critical–ensure you have the necessary tools in place for tracking time and expenses. It is important to be able to include actuals, calculations for estimates, and variance for both hours and costs. A tool may be a spreadsheet or a sophisticated portfolio management software component. In either case, make sure that you nail down your processes before you start.

First, setup an easy-to-use budget management tool that will quickly show you variances and where the budget issues are within your project. Ideally a tool could be tied in with other systems used for time tracking or expenses. However, it is more important that the tool is functional, easy to use, and accurate. Second, confirm that the tool and processes are in place for all inputs to your budget management tool and that your team knows how to use them:

  • Time entry and approval for employees and for vendors.
  • System and process for invoice receipt and payment.
  • Overtime approval policy.
  • Deadlines for time submission.

Solidifying these items upfront will help you manage your budget throughout the project and prevent weekly fire drills where you try to figure out where you stand. Once you have your budget, variance thresholds, and your budget processes and tools in place, you are ready to manage your budget.

4. Manage your Budget

It is common for project budgets to be managed monthly. However a lot can happen in a month or even a few short weeks. By the time you discover an issue, figure out what to do about it and make a change; another month may easily slide by.

Good budget management requires weekly attention. Sometimes it may be even more often but, in general, weekly management should keep you on top of the situation. If you set up your tools and processes correctly, it should take very little time each week to update your actuals. You can also do a health check on your estimates-to-complete and update your variances.

If you’ve diligently defined your budget, clarified acceptable variance thresholds, and properly defined your processes and tools, you will have excellent insight into your financials at all times. Diligent budget management is straightforward if the proper planning goes into it. The more time you spend on steps 1-2-3 above, the easier that step 4 becomes.

Effective budget management is critical to being an effective project manager–a blown budget usually means a failed project. Following the proven practices above will help give you the necessary insight to identify and mitigate budget risks before they become higher-level issues.

While the average PM will never become President, and won’t have a Congress to help them allocate their spend, every PM should understand their duty to control project funds. As the Japanese proverb says, Getting money is like digging with a needle, spending it is like water soaking into sand. Make sure you don’t soak your project and only bestow funds from a well-managed budget.

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About Carl M. Manello
I am Slalom Consulting's Practice Lead for Delivery Effectiveness. I work to support organizations' capability and delivery maturity -- not just IT organizations -- so that their initiatives run more predictably, efficiently and provide the best results.

4 Responses to Simple Ways to Keep on Budget

  1. PM Hut says:

    Hi Carl/Edwin,

    Your article is a great guide for project managers to ensure that their projects remain on budget. As I have already gotten the authorization of publishing articles written by one of your colleagues (Roger Kastner), I would like your permission to republish yours.

    I hope you’re OK with this. If you are, then please either email me directly or contact me through the “Contact Us” form on the PM Hut website.

    Thanks for a great article!

  2. Another good way to keep on budget is by making sure the employee timesheet software you’re using is up to date and precise. I find things usually spiral out of control whenever employees are left to their own devices and no one is there to make sure they’re clocking in and out on time or behaving correctly.

    • Vincent,

      That is a great point, when in an organization that is sophisticated enough to be using time-tracking tools. Many of my clients — even within their IT organizations — are not leveraging time tracking of any sort. In these cases, the challenges for estimating and tracking the true cost of an initiative are magnified.

      And, even in those IT organizations that are leveraging tools, we often neglect to recognize the hours and time put in by non-IT folks.

      Have you had similar issues with your endeavors?


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