The most obvious indicator of a project’s failure is budget overruns; simultaneously, it’s the number one project manager’s nightmare. As long as your company does not have an unlimited budget, you have to constantly keep track of your project financials and have a budget management strategy to keep your project budget under control and your stakeholders happy.
Be Realistic, Budget for Surprises, and Develop Relevant KPIs
When it comes time to estimate costs, be realistic. Build-in contingencies and factor in things outside your control, such as external circumstances that can impact the pricing of supplies, resources, and labor; product/service shortages; currency rates, and so on. Make sure vendors can deliver on their promises and prepare a backup plan. Plan for surprises, so you aren’t blindsided.
There is no way of forming a working budget strategy without establishing a map of realistic and achievable key performance indicators (KPIs). The KPI map will help you accurately evaluate the progress and the extent to which the project’s actual budget differs from what was planned.
Here are essential KPIs you might consider when building your strategy:
- The actual cost of work performed (ACWP) shows how much money has been spent on a project to date.
- Cost variance (CV) indicates whether the estimated project cost is above or below the set baseline.
- Budgeted cost of work performed (BCWP) that shows the approved budget for performed project activities.
- Budgeted cost of work scheduled (BCWS): the estimated cost for project activities planned/scheduled.
- Return on investment (ROI) shows a project’s profitability and whether the benefits have exceeded the costs.
Revisit, Review, and Re-forecast
Any project without budget management and re-forecasting is destined to fail. Constant budget oversight is the number one solution for preventing cost management from getting out of hand.
For example, a 10% budget overrun is much easier to correct than a 50% overrun. Therefore, it is essential to keep track of your budget and re-forecast. Just as a project’s budget needs to be constantly revisited, so too does the project’s resource usage.
Here are some effective budget forecasting techniques to consider:
- A budget baseline is an approved, time-phased plan set up as a point of comparison for actual performance progress and one of the biggest challenges a project manager faces. Creating a baseline should not be an issue, but a starting point to measure performance against. The “unknowns” will most definitely rise somewhere along the way, especially early on. So, the healthy way is to accept that projects will experience changes and evolve. The baseline will keep you on track and ensure you move toward the defined goals and measure how project changes affect the schedule and budget.
- Categorization of expenses can come down to plotting fixed costs and variable costs on a graph with “monetary resources” on the one axis and “acquired units” on the other. The trick is that readings of the fixed cost will remain the same; variable costs, however, will grow as the business expands. Examples of fixed costs include rent, basic utilities, like electric and telephone service, equipment leases, interest payments, administrative costs, etc. Examples of variable costs include raw materials, direct labor, packaging, depreciation due to usage, power, and gas used in manufacturing, shipping, income taxes, etc. The bigger your business, the more robust your product line is, and the more need you have for preparing budgets that differentiate between fixed costs and variable costs.
- Constant updates and revisions will allow your budget to be the one you can actually stick to. That is when a tool gives you a way to calculate average spending by category, so you can easily create a budget based on spending patterns that will come in handy. More so, you can report how much your project is actually spending on a year-to-year, month-to-month, or even a weekly basis. An automation tool that allows for the adjustment of budgets as you go will help you meet your budgeting goals, plan ahead, and plan for one-time-only expenses as easily as recurring expenses.
Project Budgets and Cost Estimates Control and Keep Projects Organized
The task of creating a budget is just a part of the equation. Managing and maintaining the budget is as important and, at times, an even more challenging part of the project manager’s job. With the growth of the business, the amount of data necessary to incorporate into the plan grows.
More so, the number of projects may grow as the business expands. That means more and more projections to consider, and more and more data to factor in. That’s why, no matter the PMO’s skill set, the use of specially-designed tools is unavoidable. Using models, templates, and calculators, an effective project manager estimates accurately, monitors carefully, and manages risk appropriately.
If you’re one of those people who still use spreadsheets or whiteboards, it may be time to go digital. Improve your business processes by implementing portfolio management by introducing complete portfolio management and automation solution. Get access to valuable insights into the overall performance of your project with a strong project and portfolio management tool.
It can help you transform your business as well as allow you to view the statuses and progress of all your projects and portfolios in one place. Plus, it is extremely easy to use – an intuitive interface created specifically for project managers. Update project status, budgets, risks, and releases all in one place.
The elements of cost management in PPM systems speed up the process, increase productivity, reduce risk, and measure costs throughout the full lifecycle of any project. Being a CEO or a PMO of a small business, choosing a suitable tool for forecasting and managing costs and profitability can be a challenge. You can use Spark Notes for this.
Seven Essential Features for Cost Management within Project Management
Cost Estimation is the first and foremost project cost management tool. Without the ability to forecast the price of a complete project, the project manager cannot get a clear scope of the budget strategy. There is more than one type of cost estimation in project management.
You can use fixed, variable, direct, and indirect cost estimation. The schedule and other factors can change, so it’s important to update price estimates so as not to lose the correct price range of the whole project. The software that doesn’t have powerful estimation capabilities, like portfolio history, won’t be of much use.
Budgeting is the next step after creating a cost estimation for your project management plan. The solution you choose most definitely should allow you to approve the project’s budget. The best apps and platforms allow for scheduling and sending reports on expenses.
PPM Express also enables you to set budget limits based on time or cost, so you can track and adjust the project as it progresses. This is a way to get regular updates on a project’s expenses and also to track workflow direction.
Performance measuring is an extremely important part of the concise budget strategy. Measuring long-term performance requires the company to construct a comprehensive performance assessment that measures the value it has created and estimates its ability to create more. Factors that drive value in a company are basically a set of metrics that can also gauge a company’s ability to create economic value in the future and the risks that might prevent it from doing so.
Using these metrics is essential to understand the impact of factors outside management’s control: for example, the case of an oil company whose improving profitability comes from rising oil prices rather than better exploration techniques or of a bank whose stock price rises because of changing rates, not increased efficiencies. To use any metric that assesses how a company is doing, you must strip out the impact of such factors.
The easiest way to keep track of performance is by having a dashboard that updates data in real-time and has a cost baseline, planned and actual project costs, schedule variance, and the percentage of completion built-in. Improve your business processes with tools to track and control your budget plans, manage multiple portfolios, and factor invaluable insights into the overall performance of your project delivery.
Easy reporting is the key to project smooth continuous work, so you need a tool with a variety of easy reporting options. You are living in 2018, so if you are building a report that requires manual data insertion or extra steps to incorporate data from outside the system – choose again.
Does your team report their progress via Microsoft Planner or Atlassian JIRA? PPM Express is a tool that not only “plays well” with other reporting tools but, in conjunction with Microsoft Office Project Online, allows for both – a quick look and wide layout on each project, each portfolio, and every separate aspect of it. Having instant insights into your progress is a great advantage on the way to successful project management.
Securing the continuity and ease of data sharing and merging with Cloud technology is the key. It allows transparency across your enterprise and visibility, even with multiple projects to report progress on.
User-friendly interface and speed of deployment cost management is no picnic as it is; so, a user-friendly, intuitive interface tool is a must as well as the intuitive deployment. In fact, 24% of surveyed users in the US say ease of use is the most important element of a project management tool.
A user-friendly interface can increase productivity and minimize the margin of error. If you’re struggling to use your tool, you should probably look for another one. The adequately chosen toolkit enables automation of the configuration routine, allowing you to choose among ready-made configuration packages, create configurations of your own, and manage multiple groups and departments in minutes.
Affordability is very important for small businesses. Compact teams need functional cost management tools without a hundred-dollar price tag.
Fortunately, these days, you don’t have to get a space station dashboard out of your price range to get things done. The correct tool will help you increase productivity while reducing costs, while carefully balancing the benefits against the price of $3 per user.
Third-party integrations are very, very important these days. To date, there is practically no business running smoothly with one tool in the toolkit. Project cost management tools should offer seamless third-party integrations with the most used and effective tools on the market.
Without this option, you would not be able to momentarily streamline your entire project management. PPM Express has built-in integrations with Office 365 Planner, Teams, Atlassian JIRA, Trello, Asana, and others.