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31511233/1203 © 2003 Business & Legal Reports, Inc.
BLR’s Human Resources Training Presentations
Project Management III: Sticking to Your Budget
31511233/1203 © 2003 Business & Legal Reports, Inc.
Goals
Recognize the need for careful and accurate budgeting
Understand the basic steps in budgeting Realize the importance of closely monitoring
expendituresBe better prepared to deal effectively with
problems and stick to your budget
31511233/1203 © 2003 Business & Legal Reports, Inc.
Why the ProjectBudget Is Important
Defines resources available Establishes spending limits Provides you with a guide to planning
and spending
31511233/1203 © 2003 Business & Legal Reports, Inc.
Basic Elements Of a Project Budget
Labor Materials
and equipment Time
31511233/1203 © 2003 Business & Legal Reports, Inc.
An Overview of the Budgeting and Planning Process
Setting project goals Determining activities,
staffing, schedules, etc.
31511233/1203 © 2003 Business & Legal Reports, Inc.
An Overview of the Budgeting and Planning Process (cont.)
Researching and assigning costs
Modifying the plan and revising the budget
Finalizing the budget
31511233/1203 © 2003 Business & Legal Reports, Inc.
Preliminary Questions in Budgeting for a Project
What is the time frame of the project?
What is the priority level of the project?
What is the expected outcome?
Is there precedent for the project?
31511233/1203 © 2003 Business & Legal Reports, Inc.
Preliminary Questions (cont.)
What are the quality standards? Has a budget cap already been determined
for the project? Has staffing been allocated? What outside resources are available?
31511233/1203 © 2003 Business & Legal Reports, Inc.
Researching Costs
What to do Where to look Researching hard-to-define costs Dealing with new or unusual projects
31511233/1203 © 2003 Business & Legal Reports, Inc.
Assigning Costs
Project plan Uncertain
cost estimates Labor costs
31511233/1203 © 2003 Business & Legal Reports, Inc.
Budget Worksheet
ActivityEstimated Total Time
Staff/Outside Resource
Materials and Equipment
Estimated Total Cost
31511233/1203 © 2003 Business & Legal Reports, Inc.
What to Watch Out for When Assigning Costs
Don’t underestimate Don’t overestimate Don’t skimp on the quality of resources Don’t skimp on labor
31511233/1203 © 2003 Business & Legal Reports, Inc.
Reviewing and Revising Budget Estimates
Could the scope of the project be scaled down?
Could you get by with a smaller staff? Could you apply different methods to
increase efficiency?
31511233/1203 © 2003 Business & Legal Reports, Inc.
Reviewing and Revising Budget Estimates (cont.)
Could you live without expensive equipment?
Could you use cheaper materials? Could you adjust the schedule to save
money?
31511233/1203 © 2003 Business & Legal Reports, Inc.
Drawing Up a Budget Proposal
Detailed presentation of expenses Budget format Contingency budget Use charts and graphs
31511233/1203 © 2003 Business & Legal Reports, Inc.
Emergency Budgets
Shorter deadlines, more staff, etc.
Example
31511233/1203 © 2003 Business & Legal Reports, Inc.
Revising the Budget
Changes in the project plan
Consequences of each change
Budget cuts Final approval
31511233/1203 © 2003 Business & Legal Reports, Inc.
Monitoring Expenditures During Implementation
Baseline for comparison Project management software Project auditsExpenditure reports from accounting
31511233/1203 © 2003 Business & Legal Reports, Inc.
Monitoring Expenditures (cont.)
Actual expenses vs. cost estimates
Schedules Scope of the projectCost overruns
31511233/1203 © 2003 Business & Legal Reports, Inc.
Budget-Tracking Form
Activity Number Start Date End Date
Staff/Outside Resource
Est. Cost Materials
Est. Cost Equipment
Est. Cost Labor
Total Est. Cost Actual Cost
31511233/1203 © 2003 Business & Legal Reports, Inc.
Reviewing Your Budgeting Experience
How did the final accounting compare to your budget estimates?
What worked as expected? Where were the problems? What would you change for your next
project?
31511233/1203 © 2003 Business & Legal Reports, Inc.
Potential Budgeting Pitfalls
Insufficient resources Failing to negotiate
for adequate funding Underestimating costs
31511233/1203 © 2003 Business & Legal Reports, Inc.
Potential Budgeting Pitfalls (cont.)
Making mistakes in cost estimates
Forgetting to include expenses in the budget
Failing to account for training needs
31511233/1203 © 2003 Business & Legal Reports, Inc.
Potential Budgeting Pitfalls (cont.)
Allocating resources poorly Facing events you can’t predict or control Failing to monitor the budget closely
during project implementation
31511233/1203 © 2003 Business & Legal Reports, Inc.
Goals
Recognize the need for careful and accurate budgeting
Understand the basic steps in budgeting Realize the importance of closely monitoring
expendituresBe better prepared to deal effectively with
problems and stick to your budget
31511233/1203 © 2003 Business & Legal Reports, Inc.
Summary
Careful and accurate budgeting is essentialAs project manager, you are primarily
responsible for developing an estimated budgetYou must also track expenditures precisely
during the implementation phase Failure to take these steps can lead to cost
overruns and have a negative impact on the outcome of your project
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz
1. Why is a project budget important?
2. Identify the three basic elements of a budget.
3. What are some of the sources of information you can use when researching project costs?
4. If you are using your own employees for a project, you don’t need to assign a cost to labor in the budget. True or False
5. Name three things you should watch out for when
assigning costs.
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz (cont.)
6. It’s always a good idea to pad your budget a little to account for possible cost overruns. True or False
7. As a project unfolds, you should compare _________ to _________ on a regular basis.
8. You should also conduct a ____________ at key milestones during project implementation to make sure you are staying on budget and on schedule.
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz (cont.)
9. The best way to monitor expenses during implementation of a project is to rely on expenditure reports from the accounting department. True or False
10. Identify three potential pitfalls in budgeting for a project.
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz Answers
1. A project budget is important because it defines resources available for a project, it establishes spending limits, and it provides you with a guide to planning and spending.
2. The three basic elements of any project budget are labor, materials and equipment, and time.
3. When researching project costs you can look at past projects of a similar nature, talk to in-house experts, call vendors, and use standard pricing guidelines.
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz Answers (cont.)
4. False. You should always assign a cost to labor in a project budget—even if you are using your own employees. In this case, the cost will usually be assigned as a percentage of the company’s overhead.
5. When assigning costs don’t underestimate or overestimate, and don’t skimp on the quality of resources or on labor.
6. False. It is best to develop a contingency budget for unforeseen or unpredictable expenses.
7. As a project unfolds, you should compare actual expenses to cost estimates on a regular basis.
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz Answers (cont.)
8. You should also conduct a project audit at key milestones during project implementation to make sure you are staying on budget and on schedule.
9. False. While expenditure reports should be reviewed and can be helpful in monitoring expenditures, they can’t be exclusively relied on because they don’t tell the whole story. They won’t give you an accurate picture of all expenses to date because they only reflect money that’s already been spent, not expenses that have not yet been billed and paid.
31511233/1203 © 2003 Business & Legal Reports, Inc.
Quiz Answers (cont.)
10. Potential budgeting pitfalls include insufficient resources, failing to negotiate for adequate funding, underestimating costs, making mistakes in cost estimates, forgetting to include expenses in the budget, failing to account for training needs, allocating resources poorly, facing events you couldn’t predict or can’t control, and failing to monitor the budget closely during project implementation.