50 Managing Budget
Projects seldom go according to plan in every detail. It is necessary for the project manager to be able to identify when costs are varying from the budget and manage those variations.
Evaluating the Budget During the Project
A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders. It is necessary to establish an understanding of how this progress will be measured and reported.
Example: Reporting Budget Progress on John’s Move
In the John’s move example, he estimated that the move would cost about $1,500 and take about 16 days. Eight days into the project, John has spent $300. John tells his friends that the project is going well because he is halfway through the project but has only spent a fifth of his budget. John’s friend Carlita points out that his report is not sufficient because he did not compare the amount spent to the budgeted amount for the activities that should be done by the eighth day.
As John’s friend pointed out, a budget report must compare the amount spent with the amount that is expected to be spent by that point in the project. Basic measures such as percentage of activities completed, percentage of measurement units completed, and percentage of budget spent are adequate for less complex projects, but more sophisticated techniques are used for projects with higher complexity.
Project Cost Management Tips: Keeping Your Project Budget Under Control
Managing the Budget
A key aspect of ongoing cost management is monitoring cost estimates. Baseline budgets often change after they have been approved. Successful project leaders understand that estimates are just that, estimates. As new information and real experience occur, it may be necessary to revise an estimate. In some cases, the revision is minor and does not impact the achievement of the project’s total budget. In other instances, the necessary revisions are significant, and a new baseline needs to be created.
It is important for project managers to discuss the ongoing management of the schedule with key stakeholders to understand their expectations of when/how they are informed of changes that need to be made. Large complex projects may document stakeholders’ expectations for ongoing cost management in a formal Cost Management Plan. In addition, there are several tools and techniques that help project leaders monitor and control project budgets.
Example of Budget 1
Example of Budget 2
Example of Budget 3
This chapter of Project Management is a derivative the following texts:
Essentials of Project Management by Adam Farag is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.