Every so often I do a roundup of questions that I’ve been asked, relating to the topic of this blog – project budgeting. Let’s dive in to some more of your questions about project budgeting!
What’s the best tool for managing your project budget?
Unfortunately, there’s no simple answer to this. The answer depends on how your company expects budgeting to happen.
Many companies rely on Excel to track and report project budgeting. I have an Excel spreadsheet myself that tracks invoices and purchase orders, as well as current budget and forecast. We have a corporate template so all projects track the same thing, although because it’s Excel it is possible for project managers to amend the spreadsheet and personalise it. There is some latitude to track what’s important to this particular project. For example, sometimes I need to track spending in different currencies or with different tax rates, and not all projects at my company require that.
So – while I can’t give you a one-size-fits-all answer to this question, the answer lies in your PMO or Finance department. Talk to them about their requirements. Do they want you to enter data in your project management software (that’s the main alternative to spreadsheets) or do they have another way they want you to track your budget?
If there is no corporate standard, you have the latitude to work it out yourself. Spreadsheets are the easiest to get started with. Ask another project manager what they do, or search projectmanagement.com for templates.
How much contingency should I add?
This question comes up a lot!
And unfortunately, again there isn’t a simple answer. You might have organisational standards about how much contingency gets added to a budget. But in my experience, that isn’t the case. Project managers are largely left to their own devices and are expected to work out contingency themselves.
You should ask yourself:
- How risky is this project?
- Have we done something like this before that gives us confidence in the estimates?
- How certain are we that we’ve got all the tasks on the plan?
- Have we got the full requirements or might something else come up later that absolutely needs to be done?
- Do we have confidence in our supply chain?
The answers to these questions will help you work out whether you need to be generous with contingency or whether you can cut it back a bit.
The riskier the project, the more different it is from things your company has delivered in the past, and the level of confidence you have in the whole thing determine the contingency.
A reasonable starting point is 10% on the whole project budget. Cut it down for areas where you have confidence – like project initiation and close down, where the tasks are relatively standard and you can estimate the work more accurately. You might need to boost up contingency on project areas where you are doing unique work that hasn’t been done before and where your estimates are basically guesses.
Always make your contingency explicit in the budget and explain to your sponsor why it’s in there.
What’s a project budget summary?
It’s just the headlines of the budget. For example:
- The overall budget number – how much money your whole budget is
- How much you’ve spent so far
- Some text to provide narrative about whether you are on track or not.
You use the budget summary in your project status reporting. It goes in the box about project budget update (or whatever your similar section on your report template is called). All it’s for is to give the project sponsor and the wider stakeholder group the short version of where the project is with its spending. They don’t care if you’ve spent £3.50 this month on stationery suppliers for team members on the road. They only want to see the big picture, and the summary statement gives them that.
If you feel that the total + current spend + narrative doesn’t give them enough information (or they are constantly asking you for more detail) then provide what’s necessary. They may want estimate to complete or some other type of information. Ultimately your project reporting should deliver what they want to know about the project, so ask them if your summary is hitting the right points and if not, switch it up.
I’ve done other Q&A articles before. If you enjoyed this one, check out the other instalments in this series.
And if you have questions for me, please drop me a message! I’d love to feature your question in an upcoming article.
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