What if it was your money?
From the The Money Files Blog
by Elizabeth Harrin
A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts.
Written by Elizabeth Harrin from RebelsGuideToPM.com.
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Date
Being in control of a project budget is a big responsibility. There's tracking to do, dealing with suppliers, potentially time recording or approving timesheets, invoice tracking and reporting.
Once you have agreed a budget tolerance with the project sponsor, it's your responsibility to keep the project on track and make decisions about spending. Provided you are on track with your budget forecast - whether you use Earned Value Analysis or not - within reason how you spend the money to deliver the end product is up to you.
So how do you make those decisions?
The rule of thumb I apply is: would I make this spending decision if it was my money?
Let me give you an example.
Consider this: you are managing a software development project, which requires software and new hardware to be rolled out to 25 offices. Each office needs new computers, printers and scanners as well as the software. You have worked out a good estimate of how many pieces of hardware each office needs, and you are using this to guide you as you visit each office in turn.
You arrange to meet the manager of one of the offices and when you arrive you realise that he has taken on three new staff to support the growing needs of the business. They all need new computers and the office will need an extra printer as a result. None of this was originally in your estimates.
Should you buy the extra equipment required?
Let's assume:
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The budget is on track
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Buying the extra equipment won't push you over acceptable spending limits
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The equipment is genuinely necessary.
In that case, why wouldn't you buy the extra equipment?
OK, you could say that the new staff and the incremental growth at that office is out of scope. You could argue that the manager will have to locally fund any new equipment above and beyond what you had planned. But what's the point in that? If it was my money I'd decide it was the right thing to do for my project stakeholders and the project overall. So I'd do it.
Let's take another example. Another software project. It's a really small project to launch a non-critical reporting system. The standard project plan includes some disaster recovery testing effort. The DR test environment and exercise will cost about £600 (as I said, small project).
Would I spend my money on that? No. On assessing the risk, I'd conclude that it was worth the financial saving (and the time) to not go ahead with that task.
Go through the approvals internally if you have to. Drop budget items in and out of scope with the proper internal control. But look at the budget as if it coming straight from your pocket and make your decisions informed on what that tells you.
Ask yourself: would you spend your own money on the project? If not, why are you doing it?
Posted on: August 14, 2011 05:22 AM |
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Comments (7)
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Wai Mun Koo
PMO Director| Intergraph PP&M
Singapore, Singapore
Good article. Controlling budget is tough and your examples are valid. I have seen how some teams splurge money on non-essential things in project like nobody's business. On the other hand, there are teams trying to squeeze the last drop out from the budget and cut on things that are critical to the project. On the surface, using yourself as a gauge to decide if you would spend the money in the project if it is your own money sounds logical. However, I would also cautiously consult alternate opinions or approval instead on just relying on one person's gut feel. We know that there are people who are less discipline in controlling spending and some might even have compulsive spending behavior. We should always evaluate it based on the ROI of the spending and what tangible and intangible benefits it will bring to the project.
Wai Mun, cautiously consulting others is a good idea to supplement this. People have different spending priorities in their personal lives and you can't be sure that this won't spill over into their approach to dealing with money at work. Relying on one person (yourself) could be a problem if you know that you are typically penny-pinching or spendthrift. Gut feel is always part of the decision making process, but supplementing it with other ways of evaluating the data is useful.
Wai Mun Koo
PMO Director| Intergraph PP&M
Singapore, Singapore
I agree. Justifying and evaluating the spendings in projects is one of the least explored area in project management and in my opinion, is quite badly handled in most projects.
I agree with Wai Mun. Most of the time its always the Revenue that people are talking about without realizing that the cost of the project also matters and that profit is what they should be looking at.
Mary Grace, one of the ways to get a full understanding of the costs is to track time. People don't always like the idea of doing timesheets, but you can't get a full appreciation of the project costs unless you do that. What do you think?
I agree Elizabeth. More often than not, some resources are more pressured in doing the timesheets rather than doing their tasks especially for those handling multiple projects but we need timesheets to get the actual work done.
Thomas Soam
Project Manager| BDA
Seremban Ns, Ns, Malaysia
Hi Elizabeth,
I like this" would I make this spending decision if it was my money?" rule....
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