Tips for Successful Budget Management
Updated: Sep 5, 2022
Budget management is a cornerstone of what we do as project managers. It’s one of the few constant pillars that project managers do in every industry, from software to construction. The good news is that the methods for managing budget are relatively similar no matter what type of project you are managing. Here are some helpful tips on making sure your budget remains safe and intact.
Effective Work Breakdown
Being able to properly monitor your budget depends heavily on having a competent breakdown of your work. Being able to monitor tasks at a micro level that will aggregate up to a macro level will be crucial to being able to properly see where your spend is going and what areas of your project may be in danger of going over budget. This requires a balance however. You do not want tasks broken out so finite that your team has trouble understanding where to log their time towards. A good rule of thumb that I’ve used in the past is no ‘bucket’ of hours for a task should be less than 24 hours or greater than 80-100 hours. This varies greatly depending on the nature of the project and your methodology to deliver but being able to have the time entry tasks defined properly is key to you being able to effectively monitor the time going against your project.
Measure, Monitor, Project
Now that you’ve set up your time entry buckets properly, you have to monitor the spend of your budget. But since you’ve architected the time entry buckets in such a way to easily monitor, you are already halfway there. I’m a big proponent of using earned value to measure not only your progress to-date but also using that progress to predict where you are going to land at the end of your project with respect to the budget. For example, say you have a task named “Design” that you and your team have estimated to be 80 hours of effort (or “budget”). Through execution your team begins to log hours against that task when performing the work. After you hit 30 hours of time entry you review where you are at with your team in terms of progress (remember – hours logged are not always a direct indicator of % complete). You go through the remaining work for Design with your team to come to an estimate of 60 hours remaining of effort. Using the earned value method this will give you an estimate at complete (EAC) of 90 hours (10 hours over budget). This is your yellow flag to do something to help mitigate the risk. Perhaps changing resources to get the work done in smaller hours, taking a different approach to the design sessions to reduce meeting time. Whatever your strategy may be, you know that on the current track, you are slated to go over budget so this is your cue to jump into action to get in front of it.