Projects get funded based on parameters such as the duration, resources needed, licensing costs, and contingencies that will be required to be able to complete the project. However, many situations arise where the costs exceed the budget allocation of a project, which could spell disaster as the project may not be able to be completed due to a shortage of funds. It is the responsibility of a Project Manager to ensure that their project stays within budget, and that cost overruns are anticipated and addressed as early as possible before they jeopardize the progress of a project.
The tips listed below are vital in ensuring that a Project Manager takes all steps necessary to adequately manage the costs within their assigned projects:
1. Track Costs on a Weekly Basis
Resources
Resources typically enter their time weekly, and Project Managers should review the hours entered against the resource allocation information on their project plans to check for any variances. This allows you to identify any over-allocated resources and, in some cases, resources that may be inadvertently billing their time against your project budget.
3rd Party Vendors and Software Licensing Costs
If your project involves the utilization of 3rd party vendors, it is imperative to check their hours on a weekly basis especially because they are always a huge expense on an hourly rate. Costs can balloon dramatically if 3rd party vendors are billing hours on a project without a Project Manager confirming that they are actually performing the activities which they are billing for on a project. In the event a project includes a subscription to a software license, those can be checked monthly since that is how subscriptions are normally structured, however, they should be terminated as soon as the usage of the software is no longer needed.
The biggest advantage to doing these weekly cost-tracking is so you can immediately spot any random spikes in costs that cannot be explained based on the pre-determined estimates. Furthermore, you will not have to wait until it is too late to prevent cost overruns because of the weekly checks against the project run rate. Some software programs can track costs in real-time daily, but it is largely contingent upon all data being entered in real-time; the automation of this process is currently one of the developing trends in the future of project management.
2. Develop a Cost Baseline
Reviewing historical data is a good starting point to check on the costs of past similar projects and develop a baseline upon which your project should mirror. In the absence of historical data, a Project Manager can use the approved budget information to create a baseline, then evaluate any changes that affect the baselined costs during the progression of the project. If major changes impact your project costs, you need to re-baseline your project costs accordingly so that the remaining part of your project stays within the range of the anticipated cost estimates.
3. Request for Additional Funding Early
Once a Project Manager has determined that they will be running out of funds to complete a project, they need to develop an addendum to the original budget to show where funds have been spent, and what will be needed to cover the remaining costs. Justifications need to be attached to explain why the original budget estimate was not sufficient, and the Steering Committee may need to approve the additional funding request before the money is allocated to the project. The important caveat here is the early identification of when additional funds will need to be provided so that you have enough time to get the funds allocated without having to pause the project thus impacting the completion of the remaining tasks and milestones.
At PM Imperative, we cover the latest trends in Project Management and Product Management. As PM practitioners, we understand the value the Project Managers and Product Managers bring to each organization and that’s why we focus on the most practical strategies that Project and Product Managers can implement immediately. If you found this post useful, be sure to check out our latest book: The PM Imperative – Guide for Leading & Managing Projects, People & Delivering Value. https://pmimperative.com/shop/
About Author
