The Art of Managing Projects to Their Budgets: 5 Best Practices
By Carr Philips
In the world of project management, the overall success of the project is determined by three factors—on-time delivery, customer satisfaction and on-budget delivery. If a project goes significantly over-budget (as they often do), it will not be considered a success, even if it’s delivered on time and meets end users’ needs. A Government Accountability Office study found that half of the federal highway projects it examined had cost overruns of more than 25 percent.
Gartner analyzed2 tech projects implemented by healthcare delivery organizations and predicted that more than 60 percent would be at least 30 percent late or 20 percent over budget. Oxford University research3 of 1471 projects shows that Information and Communication Technology projects deviate from their initial cost estimate by more than 10% in 8 out of 10 cases. The average overrun was 27% and one in six of the projects had a cost overrun of 200 percent.
How can we better manage projects to their budgets? The article discusses the five best practices for ensuring maintaining control of your project budget and preventing cost overruns, and then highlights how technology can enable project managers and organizations to achieve this objective.
The five best practices include:
1) Start with a solid plan: The life cycle of a project begins with a project plan which defines the project goals and objectives, resources needed, timeline for tasks, key metrics and budgets. A preliminary project plan becomes the basis for a bid, so it is important to start with a solid plan that incorporates all of these elements. Most organizations use traditional project management tools and historical work breakdown data to create a schedule for the new project, as well as an internal skills database to create a resource plan. However, they don’t go into that much thoroughness when creating a project budget plan.
In order to ensure that the project is delivered within budget and on schedule, it is important to use the same amount of rigor in creating a budget as is used for creating a schedule. You first need to create a detailed cost plan for the project. This includes all the costs that the project will accrue, whether they have to do with people, equipment, suppliers or materials. Access to historical budgets and spend data not only provides a comprehensive framework for creating such a plan, but also significantly reduces planning errors that creep in due to omission of certain soft costs, use of wrong assumptions or inadequate allowances.
