Once your budget is signed off, your project sponsor should let you manage the project finances how you see fit, as long as you are within your agreed tolerances. In general, sponsors and other senior stakeholders don’t mind expenditure on their projects. They do, however, mind about unplanned expenditure.
Unplanned expenditure is where costs arise on the project that you had not foreseen. This could be anything from forgetting to budget for a key resource or a rise in the cost of steel that pushes the spending outside the agreed tolerance.
Unplanned expenditure isn’t good because:
- It means you haven’t thought through the project budget adequately in the first place.
- Project sponsors need to find the extra money from somewhere and once budgets have been agreed for the year or for all active projects, that means taking the money from somewhere else. Or cancelling or slowing down your project (or another project).
Sponsors don’t want to work with project managers who end up having to go back and ask for more money. While this is sometimes inevitable, there are some things you can do to minimize the impact of unplanned expenditure. Here are some tips.
Involve the team in the budget
Don’t plan your budget in isolation. Talk to the people who will actually be doing the work and get them to help prepare the final costs. They will know the detail of the components involved and their prices far more accurately than you will. They can also help source suppliers and be involved in procurement activities. The more they are involved, the more likely they are to take ownership of their piece of the project and work towards delivering it for the agreed price.
Once you have a comprehensive forecast, share it with the team. You will obviously want to ensure that salaries are not included, but many other elements can be shared transparently. It could be the first time that some of the team members have seen the overall financial picture for the project or programme, so you might need to explain it.
Your enterprise project management system may also be able to help with real-time transparent tracking of the financial aspects of the project especially if your costs are mainly to do with personnel hours.
Use the experience of other projects
Talk to other project managers about how they prepared their budgets and what they would include next time. Things that seem to get routinely missed in our experience are:
- Meeting room hire
- Training equipment such as PCs, switches and a suitable venue
- Backfill costs for those involved working on the project where their day-to-day roles need to be filled by someone else
- Price rises caused by industry shortages such as the price of steel or computer equipment (of course, this can work both ways, as prices could fall too)
- Risk mitigation activities
- A budget for an end of project celebration.
Estimates for travel are also normally too low so think these through carefully. It’s not always possible to predict what travel costs will be especially if your travel falls during school holidays.
Plan for the unexpected
There will always be something you have forgotten. Even the best managed projects encounter surprises on the way. That’s where an issues budget comes in handy. Have a dedicated ‘pot’ of money set aside for dealing with issues. Effectively, this is your contingency budget, but many sponsors will see a contingency fund as a catch-all bucket that can be used for anything – if they allow you to have one at all.
Calculate the total of your issues budget based on how risky the project is and what you think might come up. If the project is relatively straightforward and something similar has been run a number of times in the company already, you would be able to predict the relevant issues and budget accordingly. If it is a novel project, it would be worth taking a realistic estimate for your issues budget. In the absence of any concrete information, use 5-15% of your overall project budget for your issues resolution fund.
Of course, if you don’t need your issues budget to handle unplanned expenditure, then at the end of the project it can be returned. Don’t spend it just because it’s there!
Following this advice won’t stop the unexpected from happening, but it might just make you a bit better prepared when it comes to the impact that unplanned events have on your budget.