Managing Money Q&A (Part 1): Will being under budget get you fired?

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Categories: budget, FAQ

Picture of word BudgetI recently gave a presentation on managing money on projects for the Project Management Bookstore.  I didn’t have time to answer all the questions, and there were some great ones asked.  Here’s a selection of those I couldn’t answer during the presentation.

What do you mean by office space?

Sometimes on projects companies need to hire space to work in, for example, if they are relocating members of different teams to put them in the same location for the duration of the project.  Office space could be in the form of a ‘project war room’ or a model office which can be used to run through the new processes.  Even small companies may need to hire desk space in a shared office or meeting rooms for large meetings if they do not have the facilities in-house.   Renting office space costs money, and that should be factored in to your project budget.

Are there Excel templates that will be provided?

No, sorry, I don’t have Excel templates I can share.  There are a number of places online where you can download project management templates.

I know under-budgeting on a project is bad but will it get you fired?

Good question!  I think it depends on the culture of your organization.  If you under-budget for a project and it costs a lot more than you thought, it could make you look incompetent, so if redundancies are on the horizon you may be in a weaker position than a top-performing colleague.

The company may have borrowed money unnecessarily if the estimate is significantly higher than actual spend.  The costs of that will hit the company but may not be included in your project cost.  Project managers should be aware.

Thanks – this is an excellent point to note.  If projects are funded from debt instead of working capital the interest rates and terms of the loan will have an impact on the company that you may not see through your project accounts.

Have you worked on projects where the mgt does not allow contingency?

Yes!  Which is why I recommend you put contingency in if you are allowed to.  Unfortunately, things happen on projects that mean you can’t accurately predict the future, and contingency funds are a useful risk mitigation tool.

Are project salaries considered project management costs or deliverable costs?
Salaries for people working on the project team are project management costs.  Let’s recap the difference:

Project management costs are the costs of doing the business of project management e.g. paying for your team members, training including the costs of a trainer, room hire, refreshments, delegate transport and accommodation, hosting large meetings off-site and hiring equipment.

Project deliverable costs are expenditure directly related to what the project is going to deliver e.g. software, hardware, purchasing equipment, licensing and things like buying software and funding anything that will change as a result of your work like new stationery or user guides or paying for documents to be translated.  

Could you please repeat the difference between contingency and tolerance?

A contingency fund is money set aside at the start of a project to be used in case of need, for example to offset unforeseen increases in costs.  The amount of this ring-fenced budget depends on the level of risk the project faces and also on the overall project budget itself.

Tolerance is the amount by which the project can be delivered over (or under) budget without anyone being concerned.  It’s usually a small amount represented as a percentage.  Tolerance is either calculated as a straight percentage of the core budget estimate or as a percentage of the core estimate plus the contingency fund.  As you should assume the contingency will be spent, it’s better to agree a tolerance based on the latter.

You can see the whole presentation online here, via a recording of the webinar.  I’ll have some more Q&A for you soon!

Posted on: May 05, 2010 02:28 PM | Permalink

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