The well-known quote, “By failing to prepare, you are preparing to fail,” is also very true when it comes to 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 a number of projects end up exceeding 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 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 that 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 helps to achieve better results. This approach is also widely used by a number of 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 cost, costs to customers, contract cost, 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 the codes used when sending monthly performance reports to customers. However, it’s still essential to be able to measure the project expenses vs. the income.
Nonetheless, some projects may run for months or even years, and simply knowing the income statement vs. project expenses does not really show whether or not a project is profitable. For this, the finances need to be able to be measured against each individual phase, and ideally against the expenses on an article level. This allows the job to be broken down into manageable parts.
Keep an eye on “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.
Still using Excel for budget management?
There’s a better way.
Spreadsheets are not the best way for managing job costs
- It’s too easy to make mistakes;
- You can’t see behind the numbers;
- It’s hard to standardize and ensure compliance;
- There’s no real-time overview of profitability forecasts;
- It means duplicate work for PMs and accountants.
Planyard saves time and nerves
Follow your budget in real time and take immediate action when errors occur. Job costs are organized, and fully searchable and accessible for forecasting, project management and more.