The well-known quote, “By failing to prepare, you are preparing to fail,” is also very accurate when executing projects.
When selected as the project manager responsible for any project, it’s necessary to quickly decide on the structure on which the project budget will be followed. While several projects exceed initial costs, it’s already too late to change things once the errors have finally been spotted, and these issues are often related to poor control over project budget.
A well-structured project budget enables project managers to:
- Immediately spot errors in the finance plan and take appropriate action
- Analyze in which phase of the project this occurred and who made the error
- Provide intelligent information to relevant stakeholders such as estimators, teammates, etc.
Set deliverable goals and bonuses.
Budgets should be ambitious but realistic. Don’t map out a budget you can’t meet—but don’t underestimate the possibilities. Here’s how to begin.
Many organizations in different industries have found that promising bonuses to key team members for deliverables help to achieve better results. This approach is also widely used by several project companies.
Once a project is won by the company, there is a 1-2 week planning time for project managers to plan and evaluate the budget. Then there is a “Project Kickoff Meeting”, in which a member of the executive board and the project manager agrees on the goal for the budget.
The project team key stakeholders are granted a prize for delivering the project under the set budget goal.
Once the goal is set, then it’s important to agree on the metrics for measuring the success.
Use standard codes company-wide
Potential customers send their requests for quotes in many different formats, but usually in a coding structure supported by their business software.
The same codes should be used company-wide when estimating and planning the budget, as doing so helps estimators quickly access the current prices of ongoing projects and calculate realistic estimates.
No more price lists are needed and much time is saved on synchronizing the information between stakeholders. Using the same codes also helps managers quickly check the potential subcontractors for specific works and get a realistic estimate for the costs. By analyzing company wide data at a high level and having structured data in place, it’s possible to gain a number of insights for improving company processes across the board.
List the works in your budget in chronologically ordered phases
Structure the work in your project budget into phases – for example, site preparation work, foundation work, etc. – and list them in your budget in chronological order.
Such a structure allows managers to monitor in real time how the project is progressing, and when a phase in the project ends, to know exactly if expectations were met or on which lines the budget was exceeded.
Have control from estimate to end cost on an article level
Each article in a budget should have the relevant information for estimated costs, costs to customers, contract costs, etc.
There are a number of stakeholders involved in preparing, running and ending a project, and so at each stage, it is important to to be able to benchmark where an error has occurred. Did the designer send the company poor materials estimates? Were the estimators too optimistic? Where and how did the unexpected occur? By having a fully structured project budget, answers to all of these kinds of questions and more can be found quickly and easily.
Have control over expenses vs. income for real-time control
In most cases, the codes used, from estimating to managing project costs, don’t match those used when sending customers monthly performance reports. However, measuring the project expenses vs. the income is still essential.
Nonetheless, some projects may run for months or even years, and simply knowing the income statement vs. project expenses does not show whether or not a project is profitable. For this, the finances need to be measured against each phase and ideally against the costs on an article level. This allows the job to be broken down into manageable parts.
Keep an eye on the “project end cost estimate.”
From planned budget and cost forecast to end cost and more, it is important to keep an eye on a number of significant metrics for projects that run several months to a year.
One of the most crucial of these to keep close watch on is the “project end cost estimate”. While the project estimate is put together based on historical cost information and a certain amount of gut instinct, what the project is ultimately going to cost becomes clearer the more that contracts are signed and tasks are completed. Far better to be able to measure whether or not a project is going to be profitable much earlier on in the process.