1. Euro invoices still require VAT
From time to time I get invoices in euro from suppliers who are based in mainland Europe. The invoices arrive without VAT. But according to local UK regulations, we still have to pay VAT on the services received. Check your local rules! Your accountancy team should be able to help clarify what taxes are required in your country, whether or not these are specified on the final bill.
2. EVM is really not that complicated
There’s lots of jargon and statistics around Earned Value Management (or Earned Value Analysis, whatever you choose to call it) but the basic principle is easy. It’s just a toolthat shows whether you are over or under budget, behind or ahead of schedule, at any given moment in the project. As EVA takes time and effort to do properly I find that it adds limited value to small projects. With a larger project you may find the EVA method useful to help you understand where you are.
3. Tolerance is there to be used, that’s why you agree it
Don’t feel bad about using your tolerances. Your project sponsor really doesn’t want to be bothered by every small change that affects the budget or time delivery for your projects, especially when they don’t make a material difference to what you have already agreed with him or her.
4. On a capital project you can’t capitalise everything
If you are working on a project where pretty much everything is capitalised, even the staff (which local rules might let you do in some circumstances if you are bringing an asset into service), then it’s tempting to think that you can pay for everything out of your capital budget. Unfortunately (again, depending on your local rules), you can’t. For example, even in situations where you can capitalise staff costs you can’t capitalise training. Of course, local accountancy regulations vary from country to country and even within a country, so check with your Finance team before you assume that you can capitalise all your project costs.
5. Accruals are complicated if you don’t plan for them
At the end of the year you will have to accrue for work that has been done but not yet paid for. That ensures that when the bill does turn up, it comes out of this year’s budget, not next year’s – very important if you are trying to balance the books and have budgeted for it this year! But that means you need to tell someone to keep that money aside for when you receive the invoice.
Keep good records as this will be a massive help come year end and it will make a real difference to how time consuming this task is. Take advice from your Finance team and plan early so that you aren’t trying to work out what’s been done but not paid for at the very last minute.
Even better, get your capital accountant to do it for you if you can!
6. One template doesn’t suit all
Your project sponsor wants a different view of the project budget to what works for you on a day-to-day basis. Your detailed tracking spreadsheet is probably too in depth for your sponsor and even some of the project team. Be aware that you may have to present different options for viewing the same data or different types of reports, but be sure that whatever you do, the data is consistent. You really don’t want your own records to be showing one set of figures and then the reports you send out to the Project Board to add up to something different. That’s a sure-fire way to damage your credibility!
3 Steps To Reducing Project Costs (video)
|In this video I look at a 3-step approach to reducing your project costs.|
4 Ways to increase your project budget
Ah, wouldn’t it be great if you could wave a magic wand and get more cash for your project? Think of all the things you could do with a bit more budget – add in some extra features, reward the team, improve the quality, deliver faster! Well, you can increase your project budget but it’s not the easiest of things to do and it does depend on your project. Have a look at these 4 ways to increase your budget and see if you could use any of them on your project.
1. Call in some favours
Yes, top of the list is cashing in those favours that you’ve been banking over the years. This could mean that another manager lends you a resource or some equipment without cross-charging your budget (call it a development opportunity). It could be that you cut travel expenses on your project by getting everyone to call in favours and stay overnight with their friends and family members.
The downside of calling in favours is then you don’t have anything in the ‘bank’ for the future and it isn’t always possible. This isn’t a reliable way to increase your project budget but depending on your project there might be something you could do here.
2. Swap or Barter for services
Again, it depends on your project as to whether swapping services is going to work for you. Swapping a high value software licence for some free pens from the stationery cupboard obviously isn’t appropriate. But talk to your connections and reach out to your network. There could be someone willing to take publicity photos or write you a press release in exchange for sending one of their staff along to a training course you are running. Look at ways to reduce your expenses.
Just a note: you shouldn’t ask people to work for free. They should be getting something of value back in exchange, otherwise it isn’t really a swap or a barter, it’s just you asking for free stuff. That isn’t ethical and you’ll probably hear ‘No’ quite a lot.
3. Reduce the project scope
What can you cut out? Reducing the scope would give you extra cash to improve the areas of scope that remain. You can’t make this decision without input from your project sponsor, but you could put forward a recommendation about postponing some areas of project scope and moving them into a Phase 2.
Look at areas of the project budget that don’t add as much value as other areas and see if you could cut those without compromising quality. Do you really need that all-hands meeting at a posh hotel? Couldn’t you manage with a conference call? Then, with your sponsor’s approval, the money that was going towards those can be legitimately put towards other areas.
4. Don’t take the first deal
Shop around for the best deal. You probably do this anyway using the procurement project management approaches for large items, but could you do it for small items too? Instead of going to your usual meeting venue, is there somewhere cheaper locally? (Or could you ask your favourite venue to match the price of another venue?). Can you get a single resource with the skills to cover several subject areas on the project? That could save you having to fund the salaries and costs of two employees.
Think about all the extra stuff that comes with what you buy – warranties, guarantees, escrow, insurance, maintenance contracts… what do you actually need and would it be cheaper to source it from somewhere else? Could you acquire equipment second hand or refurbished? There are often other ways to carry out procurement, but make sure you check any non-standard approach with your purchasing or finance team first.
What else have you tried to save the pennies on your project budget? Let us know in the comments.
4 Risks to your project budget
OK, so we all know budgets change from time to time (normally being reduced unless you’ve got a great reason for your sponsor to give you more, like a change). But aside from office politics and the change control process, there are other things that can affect your project budget. Here are 4 risks to consider when both putting your risk log together and your budget.
1. Gold plating
Gold plating is where the project team adds stuff into the project scope without the customers asking for it. It often happens on software design projects, where the developers know they can add extra functionality to improve the product, so they do. Even if the customer didn’t want it, and didn’t know they could ask for it, the team do it.
You’d be forgiven for thinking that gold plating is a good thing. After all, what project customer isn’t going to want more for their money? It’s the bells and whistles that set your project team aside from any other project team.
However, if your team is working on tasks that are not on the project schedule, that costs you money. It takes time to do extra work, so whether they realise or not, they are helping the project go over budget through their enthusiasm. Talk to the team about the proper change control process and make sure that they are only working on what is approved.
2. Scope creep
Scope creep is something that all project managers have come across at some time in their career. You start off with a narrow, well-defined scope and by the end of the project it’s become a rambling monster of requirements. This is different from gold plating – the team are working on things that are approved, it’s just that the approved work stretches the scope way beyond what was originally agreed.
Scope creep takes many forms, and can be through a poor change control process. If everything gets approved, then you know that your change process is not rigorous enough! While many changes put forward will be good, useful suggestions, some will take the project outside of its original goals and objectives. Should they really be included in this project or would it be better to manage those requirements in another way?
Scope creep adds time to your project, and therefore cost.
3. Failed QA systems
Quality Assurance (QA) makes sure that your deliverables are fit for purpose. Whether your QA system is peer reviewing lines of code or stress testing bricks off a production line, you should have some method of checking your work before you give it to the client.
Poor QA means that deliverables will make it through to the customer only to be rejected. The customer will not sign off on poor quality work, so it is far more beneficial for you to catch mistakes early on. This will reduce the amount of testing required and also give you more of a chance of your deliverables being approved by your client.
Deliverables that are rejected will have to be done again, and by the time the work has got into the client’s hands for approval, it is likely to be costly to make changes and complete rework. It is far better to catch poor quality early so that you can rectify it while it’s still cheap enough to do so.
4. Currency fluctuation
Not all projects will suffer from currency fluctuation, but if you are working with an international team, this could happen to your project. The problem comes when you budget at a certain exchange rate but of course are charged the exchange rate of the day when the invoices come in. In some cases the discrepancy between what you had planned to pay and what you actually pay can be hundreds of dollars (or euro, or yen etc).
It’s hard to plan for this, but you can make your budget a bit more robust by including a percentage contingency to cope with currency fluctuations. Only you will know what seems appropriate given the overall spend of your project and the amount to be spent in foreign currency. Talk to your accounting department as they may be able to advise on how best to manage this.
You can probably think of many more risks to your budget, but these 4 make a good starting point for budget risk planning with your team. What else do you normally include on your risk register when it comes to money?
4 Questions You Should Ask About Your Budget
Project budgets – don’t you just love them? Your sponsor gives you a complicated project to manage with a relatively low available budget, and you’ve got to take it from there. When you start a project, here are 4 important questions to ask about your budget so that you are completely prepared for the project.
How much have I got?
This is important to know! While it’s great to think that you will have the luxury of working out the full scope, detailing the project schedule and resource plan, then costing it out and submitting that number, plus tolerance, to your project sponsor for approval, the reality is very different. By the time the business case and Project Charter have been approved, there is already a good idea of how much money is available for your project. That’s your budget, whether you like it or not.
So, it’s important to know what that figure is so that you can track expenditure towards it. If you do find then that you can’t achieve the project objectives within the amount that you have been given, that’s the time to put forward a change request to get the budget increased.
What’s my authorisation limit?
Can you sign off invoices and purchase orders? And if so, up to what value? There is normally a sliding scale of sign off authorisation limits in a company depending on the level of management. You may find that you have complete authority to sign off anything related to the project but it would be more normal to find that you have a capped ceiling on what you can authorise.
For example, you may be able to authorise expenditure up to $50k, but anything over that needs to be approved by your manager. Anything over $500k may need to be approved by a director, and anything over $1m by the board.
Establishing your authorisation limit now will save a lot of time later and avoid purchase orders being bounced around waiting for someone to approve them.
What’s acceptable tolerance?
Talk to your project sponsor about what levels of tolerance they are prepared to accept. For example, if you forecast that a particular cost will be $100 with a +/- tolerance of 10%, you can spend $90 or $110 without having to let the sponsor know about it. They may be happy with this, or say there is no tolerance, or set another percentage.
Knowing the tolerance levels gives you a little bit more flexibility with managing the numbers and ensures that you aren’t always asking them to approve a tiny bit more. You can have tolerances per budget area or for the overall project, so agree with your sponsor how they want you to manage tolerance on the project tasks.
How do I access the contingency fund?
Best find this out before you actually need to use it! Contingency funds are for unforseen problems – project disasters. They are not for planned risk responses or any other type of planned work. So if you think about when you are likely to need access to your contingency fund, it is probably going to be with relatively short notice to deal with something no one saw coming and that will have a big impact on the project.
In that sort of situation you don’t want to be spending a week finding out how much is available, how you can get approval to use it and who needs to authorise it for you. Find out all of this in advance so that the information is at your fingertips when you need it. Even if you never have to use it (and let’s hope not) at least you’ll then know what to do just in case.