Budget Management Tips Every Project Manager Should Know
Every venture requires a budget. A budget conveys the deliberate plans of organizations, activities or events, or other business units in quantifiable term. It is an expression of the plan for a fixed amount of time. In short, we are talking about money. As a project manager, you must be comfortable when you are talking about project budget, even though you have your own insecurities about your own money. Budget management requires profound knowledge of all the aspects. It is unimaginable of how you can manage your project if your budget is not clearly defined. Aside from that, creating a project is not a piece of cake.
Budget Management Tips for Project Managers
It is a team work, thus it requires teamwork
This is simple. Just like any project aspect, it is not a one man job. No matter how brilliant you are, you cannot create a budget on your own. You need the expertise of every available member of your team for you to come up with a realistic estimate. Each member contributes to ensure good budget management practices.
Settle the deliverable cost estimates
There are two classifications of costs that are involved in your project. The first one is the deliverable costs. These are all costs related to the production of your final product or service. For example, your project is to build a bridge, all costs needed to procure the materials for the bridge construction like cement; metal beams, sand, and gravel are deliverable costs.
Settle the project management cost estimates
The second classification is the project management costs. These are the costs related to the administration of the project itself. For example, in your bridge construction project, the cost of paying the civil engineer, architect, mason, and other construction workers is the project management cost. These are all costs of running the project and stopping it when it is over. To ensure success this calls for meticulous budget management.
Take into consideration the cost of decommissioning
Decommissioning cost is the cost of withdrawal from service, shutting down, or dismantling an old system. It is also the cost of activities involved in not using the product anymore. To introduce something fresh, most projects alter something and that would incur costs. As for the bridge example, the cost of clearing the area, dismantling any existing infrastructure, or just destroying the old bridge is the cost of decommissioning. You should include this cost for it is the cost that is often neglected and forgotten.
Be safe, include some contingency
No matter how good you are at estimating, there will always be discrepancies. Sometimes, there are forces that are out of your control, thus it’s better to be safe than being sorry. This is the purpose of contingencies. A good budget management plan always includes this.
It becomes tricky when you are deciding on how much will you add in your budget as a contingency. There is however a way to that. The idea is to assess the risk of the project. The higher is the risk of the project, the higher is the amount for the contingency. If you still can’t decide on how much to add, some would say that you must add 20% on the budget as contingency but others would argue that 10% is enough. How much to add is really up to you. I would say that 10% is better than nothing; therefore it is a good start.
Monitor the process of spending your budget
The purpose of monitoring is to have information on how the money was spent and what are the possible complications along the way. Budget is great; however it is futile if you don’t know what’s going on in reality. Budget management helps keep you in line with project expectations.
If you are an expert in creating a project budget, it is of certainty that you are also an expert in your own financial projects. Project budgets are just bigger in numbers, but the principle is the same. What do you think? What are your opinions on budget management?