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Categories: budget
Budget cuts… this is something every project manager faces at some time in their career. Your healthy budget of whatever is suddenly subject to scrutiny because your sponsor’s department has been told to find savings of X% and all projects are at risk.
Then you find that your project has generously ‘handed back’ a sizeable amount to the corporate coffers. And yet somehow you’re still expected to carry on.
The good news is that in situations like this your project sponsor will know what has happened and should be broadly sympathetic to the idea that they can’t have everything they wanted after all. If the money isn’t there, they know you’re going to have some limitations on what you can deliver. But where do you start with that conversation?
Start With the Requirements
A closer working relationship is exactly what you should be aiming for when budgets are stretched. The more you can understand what it is your customer wants – in really granular detail – the better it is for everyone as you’ll (hopefully) be able to come up with solutions that achieve the ‘right’ outcomes in a cost-effective way.
Check that there’s nothing extra that has found its way into the scope. Check that you understand what’s expected from the contract so that you aren’t inflating or gold plating anything unnecessarily. What could you lose from scope (with everyone’s agreement) that would still end up with the customer getting broadly what they wanted?
Look at the processes and bureaucracy involved in getting the work done: often closer working relationships can strip time out of these processes and time is money, so there could be savings there.
Basically, think collaboratively about what’s possible. Lean in.
Stagger the Work
Look at what could possibly be removed from the initial scope of your project and pushed to a further delivery phase. Financial years are cyclical – there might be more money available next year to finish a particular element. Consider what parts of scope you could agree to postpone.
Small Changes Make the Difference
It’s rare that you’ll be able to make one sweeping change to your project and have all your financial issues go away. Rather, you’ll be making lots of smaller changes and tweaks across the board with a view to improving the budget position holistically.
Together, small changes really do add up. Unfortunately, identifying the right small changes and doing the planning work to incorporate lots of changes does take time. You might want to slow down progress on your project while you’re doing all this reforecasting work as you don’t want to incur additional (and perhaps unnecessary cost) at this time.
Work with your project sponsor, key suppliers and other people on the team to look at where savings could be made that would contribute to meeting the financial challenges overall.
Keep Talking
Projects move on and evolve frequently, and if you hit a problem that is going to affect the budget you should bring that to the attention of the project sponsor straight away. You should do that anyway, but in times of financial pressure and when your budget is challenged, it’s even more important to involve them in the planning and response to issues when money is at stake.
Keeping honest communication channels open is also helpful for building trust, and it ensures that you hear about changes that might affect you. For example, there might be more budget that needs to be reallocated, or you might be lucky and find that some extra cash is flowing your way.
How Much is Too Much?
In an article for PMToday Magazine way back in March 2010, John Judge explained the four stages of budget cuts, which I’ve elaborated on here:
- Budget cut by up to 15%: you can work within reasonable cost reductions across the project and hopefully minimise the impact on the project scope.
- Budget cut by 15-25%: more noticeable scope impacts with likely impact on the functionality of your end result as well.
- Budget cut by 25-35%: you’ll have to look seriously at what can be removed from scope or deprioritised, or moved into a future phase or the next financial year.
- Budget cut by >35%: consider pausing closing down the project as with this level of cuts it’s unlikely that you’ll be able to deliver effectively.
These are useful rules of thumb, but it does beg the question: if we can manage with budget cuts of up to 15%, why don’t we stretch ourselves to deliver under budget by that amount anyway?
Do you think you could cope if you lost 15% of your budget tomorrow? Let us know in the comments section!
Posted on: September 18, 2017 06:00 AM |
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