The budget overruns are a project manager's nightmare. the budget management strategy in this article keeps your project budget under control, even in these uncertain times, to the delight of your stakeholders.
Budget overruns have been a litmus test of the success or failure of the project. in 2020, the new coronal pneumonia pandemic will make keeping budgets a bigger nightmare, with the most successful companies and best project managers facing the ultimate test of managing financial resources carefully amid great uncertainty.
Many stakeholders will have to re-examine their changing priorities, budgets, and definitions of project success or failure. global uncertainty is now adding to the pressure on project leaders and their teams to change budget strategies and project execution. effective budget management will therefore be a major area of concern for project managers who value their careers.
Here are six strategies to maintain project budget control until costs are significantly overspent, given the increased uncertainty.
Understand the real needs and expectations of stakeholders
What stakeholders say they need or expect in a project is often not as simple as it seems. this can lead to unclear goals and expectations on both sides. assuming that a project manager, sponsor, team member, and supplier does not have a good understanding of the true wishes of stakeholders, it is almost impossible to determine what the project's needs are in this case.
Be sure to devote as much time as possible to a deeper understanding of stakeholder expectations. ultimately, everything, including budgets, is defined by stakeholder expectations, deliverables, and other needs. therefore, the first step in effectively managing the project budget is to ensure that project requirements are accurately identified, documented and identified by all stakeholders and communicated to all stakeholders.
This critical step should be completed before the budget is finalized. many projects are started around requirements, but they are executed around expectations, which automatically exposes projects to the risk of budget overruns and disappoints everyone.
Recognize changes in the environment
When it comes to estimating costs, be realistic - make room for unforeseen changes. when circumstances change, ensure that information is available from all applicable stakeholders. more importantly, emergency mechanisms should be put in place.
This step is essential because most companies discovered it during an influenza pandemic. many factors beyond your control can affect your budget, including supply pricing, resources, labor, financing, product/service shortages, currency exchange, and so on.
Today, the prices of many basic products or services are much higher than they were before the advent of new coronary pneumonia. you need to make sure that the vendor is able to deliver on its promises and have a backup plan in place. information can be obtained from other stakeholders and vendors and reviewed, which can go a long way to helping you develop a more realistic budget that can be met even in situations where unforeseen circumstances affect costs.
I've seen many project managers caught off guard by rising costs, suppliers who can't meet quotation obligations, or other issues. always be prepared for unexpected situations so you don't get caught off guard.
Keep stakeholders informed
When you realize that there are changes that can affect your project and stakeholders, the key is to let them know what's going on, how it affects them and the outcome of the project, and what you're doing to keep your budget as much as possible.
If maintaining the budget for the current project is not possible, stakeholders should also be aware of the root cause of any potential overruns in order to make an informed decision. it is important that uncertainty in the broader sense, such as epidemics, is inevitable and that other budget-related decisions need to be taken in a timely manner. stakeholders, such as customers, may need to decide whether the time or environment is appropriate to continue, postpone, or stop a project altogether.
Accurately identify and manage changes
Change management is one of the most underrated areas when managing projects. project management experts understand the importance of communication and how processes will affect stakeholders.
Some things may look like small changes in the process, but they can significantly increase costs or reduce budgets. change management experts should work with the project team to identify, document, and communicate an accurate strategy for addressing internal and external changes that could result in overspending.
DEVELOP RELEVANT KPIS
The project budgets cannot be effectively managed without the establishment of key performance indicators (kpis). kpis can help you determine how much you've spent on a project, how much the actual budget for the project differs from the planned budget, and so on.
Here are some common project kpis that are critical to effective project budget management: actual cost (ac), also known as actual work cost (acwp), shows how much money has been spent on a project so far. cost variance (cv) indicates whether the estimated project cost is higher or lower than the set baseline. earned value (ev), also known as the budgeted cost of work performed (bcwp), which shows the approved budget for project activities that have been performed within a specific time period.
The planned value (pv), also known as planned work budget cost (bcws), is the estimated cost of project activities planned/scheduled as of the reporting date. return on investment (roi) shows the profitability of a project and whether the benefits exceed costs.
KPIs need to be updated as circumstances change to ensure that the right information is available for decision-making.
Revisit, review and forecast
A project without budget management and re-prediction will also result in failure. frequent budget oversight is essential to prevent budgets from spiraling out of control. a 10% budget overrun is much easier to correct than a 50% budget overrun, but if you don't pay attention to your budget and re-predict it, the 10% overspend will turn into a 50% overspend before you realize it. with frequent budget reviews, your chances of keeping a project on track will be far greater than the chances you predicted once but forgot about it.
Just as a project's budget needs to be constantly re-examined to keep it on track, so does the use of project resources, as the people involved in the project contribute to its costs. the project manager should review weekly the number of people currently working on the project and the project's future resource needs.
Doing so will ensure that you can make the most of the resources you have and have the right resources in place for the rest of the project. regular reviews of resource projections and current needs will help keep project budgets on track. project-wide spread is also one of the main reasons for project overruns. the new crown pneumonia has brought a lot of unplanned work into many global projects - which increases billing time and makes the project budget even more out of control.
The project manager must carefully manage the scope of the project by creating change orders for work that is not covered by the initial requirements of the project. the change order will authorize additional funding for the project to cover additional work costs and align the project with its new budget.
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