Developing and maintaining an accurate and complete project budget is probably one of the most important things for a PM since the project budget is the total final expected financial cost to finish a project during a specificly defined period of time, with a very specific and well defined result.
Project budget helps us to track the budgeted versus actual cost which is yet another indicator of our success or failure. It is an early warning indicator. Budget provides us a screen that lets us know in the end, or all along the way, how we do actually.
To achieve accuracy several factors should be included in this process:
include the direct cost, directly related to the project, as well as any indirect cost as well.
include fixed and variable cost, any labor and materials as well as travel.
Include intangibles – like may be some travel related expenses we need to include, as well as equipment we may need and any space, any leases or license costs.
To achieve the accuracy of the budget there are several things that can be considered during the creation and maintenance of the budget.
First of all, it is a very good idea to use historical data given that it exists. We may actually have executed a similar project in the past, then it will be good time to use that historical data so we can compare data, and by this way we won’t have to start from scratch or estimate without a base line.
It is possible to use a number of methods to estimate our figures but generally the following methods are used :
+ Bottom Up Estimating: We start with the minimum viable components in the plan and then add them up
+Expert Judgement: Ask your experts ( in/extra team) to work out the cost of a task
+ Analogous Estimating: We can make use of the past experience in the team or outside to decide how much the project tasks will cost in our case.
I think those following 2 points deserve more explanation : they make use of BI that we possess currently:
In the spirit of AGILE framework is that we use the lessons learned for the project. We can import not only the data from past experiences but lessons as well. No one really wants to repeat the same lessons – it is a very expensive process. We can take those and include it in the current one also. While doing this – we must make sure that we are using all our resources – ie leveraging our matter experts that include your team members. Anyone on our team, who possibly have done similar stuff, can provide input, or any stakeholders.
The next point is to confirm the accuracy of the data we use. Never forget the maxim , garbage in / garbage out. Our project budget should be held to scrutiny once drafted, a good ideas is to have people look at it to ensure that data is accurate.
As we underlined before the project budget is about monitoring . So – we must also baseline once the above points are met.That’s what we will use for the entirety of the project to see the variance. There will certainly be changes on the way, and we have to be able re-baseline along the way. This will give us immense flexibility.
Finally, immediate and precise updates to the budget are the key ! An obsolete or un-updated budget is worthless. We need to update the budget real time. There can be no flexibility on that. If there are changes to the budget, it has to be recorded on a regular and consistent pattern so we are looking at the the right numbers.
Also, a little tip to mention is that related to the above principle is that to get things back on track as soon as possible because every little deviation from the budget and reality will just make the problem worse. You can’t work on two different realities – the one belonging to the real life will dominate the other one everytime there is a conflict between two.