Project Smart ~ Exploring trends and developments in project management today

Calendar icon
Adobe PDF icon

My Budget is 10% Over, Now What?

~ By Brad Egeland

10 percent red wood sign with golden background

The financial management aspect of project management can be challenging - there is no question about it. I just read about one government project for the state of Pennsylvania with IBM that is being cancelled after going 57% over budget on a $107 million project. That's a little extreme, but it truly is easy to let a project get out of hand if the budget is not watched carefully. And I'm not even considering the hundreds of other factors that can come into play to affect a project's financial health.

First let's talk about project success and what is generally acceptable in terms of coming in over budget. What's the threshold in your organisation? For me and the organisations I've worked with and for, a budget overrun of 10% at the end of the engagement has always been within the acceptable range. With some organisations it's been even higher, but I try never to set my bar so low that I'm striving for some level of mediocrity. So let's focus on that 10% number…does that sound about right for your organisation or PMO?

Watch it closely and keep it at 10%

I'm of the mindset that most projects can recover - if necessary - from a 10% budget overrun. It may take some creative management and some help from the executive team and possibly the customer, but it can usually be done. And if you're managing the project budget like you should be - forecasting and reforecasting every week by plugging project actuals obtained from accounting so you know where you stand every week - then ensuring that you never go beyond that 10% overrun threshold should be fairly easy to stick to…barring, of course, some unforeseen catastrophe.

So, let's assume you've been watching the project budget closely as you should be and your project is running right around 10% above the forecasted budget. You've mapped it out through the end of the project based on what you know right now and it appears that you're still likely to wrap the project up at 10% over budget. What can be done now to bring that back down closer to zero? After all, we want to do what we can to rein the budget back in - you never know when unforeseen circumstances or issues can come up close to deployment that can cause you major project financial issues. Therefore, you want to keep it as in check as possible in case you hit those issues late in the project and are left with no time to take any financial corrective action. Try to take it now. What can be done? Here is my list of 3 key things that you may be able to do mid-stream on the project to help get that project budget back in line with the original plan:

1. Look for Potential Change Orders

This is a hard one because customers don't like change orders. However, if you can see some change order opportunities, you may be able to price it so that the profit margin on that work is a little higher. Therefore, if your estimates are good on the change order work, it will up your revenue AND your profit margin and help bring the project budget back into alignment. You'll be surprised what a couple of those change orders will do to your project's financial health.

2. Offload Any Unnecessary Resources

If you have a resource still on the project who has little to no forecasted effort or tasks left on the engagement, cut them loose. They are likely still charging a few weekly hours to your project and that will kill your budget quickly.

3. Spend Less PM Time on the Project

Finally, one action that I've found to be effective is to step back as much as possible and charge less project management time to the engagement. My time is usually the most expensive time charged to the project in a professional services organisation, so decreasing my time on the project by just 4-5 hours a week for the rest of the engagement can make a big difference. If I can do it and still maintain the proper oversight of the project, that's a likely course of corrective action for me.


Advertisement


Comments

Be the first to comment on this article.

Add a comment



(never displayed)



 
2000
What is the opposite word of weak?
Notify me of new comments via email.
Remember my form inputs on this computer.

Managing Small Projects

A project management workflow diagram written on yellow sticky notes

Project management best practices can easily be applied on small projects to enable you to plan and manage your project successfully.

The Four Stages of Recovering a Project

Road sign reading Road to Recovery

If a project is in trouble, the project manager needs to work to recover it and get back on track. Four steps will help the PM facilitate the recovery.

The Most Common Sourcing RFP Mistakes

Manager passing a document to a colleague

Five of the most common mistakes in internally developed RFPs and how companies can better manage these issues by improving their RFP processes.

Effective Project Communications

Business people shaking hands, finishing up a meeting

Communication is something to think about every day. Are your messages clear? Have you provided enough context? Are your expectations for any outcome apparent?

PROJECT SMART is the project management resource that helps managers at all levels improve their performance. We provide an important knowledge base for those involved in managing projects of all kinds. With weekly exclusive updates, we keep you in touch with the latest project management thinking.

WE ARE CONNECTED ~ Follow us on social media to get regular updates and opinion on what's happening in the world of project management.


Latest Comments

Ashwini Pendharkar commented on…
10 Golden Rules of Project Risk Management
- Tue 20 June 1:32pm

Tery commented on…
A Brief History of SMART Goals
- Mon 19 June 10:10pm

Tammy Marin commented on…
Better Coaching Using the GROW Model
- Thu 15 June 10:37pm

Latest tweets

General Project Management • Please Advise: Does PRINCE2 Practitioner Exam Scenerio Changes… https://t.co/OK90gkJzMN #projectsmart #pmot about 8 days ago

RT @rkelly976: “I cannot give you the formula for success, but I can give you the formula for failure, which is: Try to please everybody.”… about 11 days ago

General Project Management • Re: Do I need project management software? https://t.co/u4Tu1fnzuY #projectsmart #pmot about 11 days ago