The Money Files

So you’re a new member of the Project Board? And wondering how to approve funding for the project?

Come in, sit down, let me tell you what to expect!

First, you should know that every project-led organisation tends to do things in a slightly different way, and managing money is no exception. So you’ll need to find out exactly how your PMO process works for project funding. What I’ll describe here is a generic, common process. There might be unique tweaks for your environment, depending on how your PMO and exec team work together, what country you are in, whether you are a non-profit, and so on.

But broadly, this is how project funding approvals work.

Funding in principle: the business case

Projects start with a good idea, which is summarised and explained in the business case. At this point, senior decision makers will choose to accept (or reject) the project. If it goes ahead, they’ve approved the funding in principle, even though no one actually gets the money to spend at that time.

Typically, projects are prioritised by importance and need, so your project might not get started for a few more months. When the time comes for your project to start, the project moves into project initiation (kick off) and work can begin.

Stage budgets

Budgets are typically handed out in phases. If you have a 5-year project, for example, you won’t get handed all the cash on Day 1. That’s bad business planning because there might be other things you can be doing with the Years 2-5 money right now. Plus, I expect it would give your business a massive cashflow problem to tie up money for that length of time when you aren’t forecasting to spend it for ages.

So money is dripped out, normally linked to the project stage.

When the project begins, you’re in the kick off and planning phase, so the money is allocated for the planned work happening in the current phase.

When you reach the end of this phase, you’ll move into the next phase of the project. There’s normally a Project Board meeting or other approval point, at which everyone agrees that the project is on track, going to deliver what it said it would, and it’s worth carrying on with the work.

You approve the project to continue, and that is the milestone that releases the next wave of funding for the next phase of planned work.

Change budgets

You’ll also be asked, in your capacity as a Project Board member, to have some degree of oversight over the change budget.

Change budgets are money set aside to pay for changes. The project budget only covers the planned work. Changes – the clue is in the name – are changes to the original scope that you didn’t know about at the time of planning the original budget. And normally changes cost more. You’re either paying to redo work, or to increase the scope and add extra stuff in.

The change budget is there to cover the cost of changes. The Project Board can sign off on a change and release the money from the change budget to pay for it.

Note: the change budget isn’t there as a lovely cushion for overspending. If the project manager asks to dip into it but there isn’t actually an associated change, then your answer should be no. It’s not there to fund general bad planning. If no one requests a change, then you can’t spend it!

Risk budget

The final type of budget that the Project Board will get involved with is the risk budget. Again, this is a budget only to be used for certain things, not as a slush fund to dip into whenever you feel like the project needs a bit extra to help get over a challenge.

The risk budget is to pay for risk management activities and the impact of risk. Once a risk has been identified, and the financial impacts of it are known, the project manager can ask the Project Board to approve spending. The money goes towards taking steps to mitigate or better manage the risk in some way. Or it could be used to pay for whatever is needed at the point the risk occurs.

Don’t let project managers spend it without it being attributed to a specific risk management task! And if you are feeling really strict (or if your PMO dictates) you shouldn’t use the risk budget for any risk other than the one that was specifically allocated at the time.

Personally, that final clause feels a bit draconian, but look at your local rules.

So that begs the question: if you can’t use change and risk budgets to deal with things other than changes and risks, what happens when the project goes over budget?

Great question!

You decide. The Project Board either needs to decide that the project is “worth” the extra and puts extra money into the project. Or it decides the business can’t fund that. Your business is not an unlimited pot of money. Being careful with how it is managed is the only way to ensure more projects come in on budget, every time.

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It’s time for part 4 of our journey through the Scope Management Knowledge Area from the PMBOK Guide®-- Sixth Edition. Today, we’re looking at the Create WBS process.

You can find the previous parts here:

• Plan Scope Management
• Collect Requirements
• Define Scope

The point of this process is to move from having the scope statement (from the Define Scope process) to a scope baseline. The Work Breakdown Structure (the WBS of the process name) gives you the baseline for what the project is going to create. It’s scope, but in a lot more detail than a scope statement.

Personally, I don’t often use the full WBS process. If you are on a small project, or leading a project where you have done similar work in the past and are working with an experienced team, or you have a scope that isn’t easy to button down, then approach the WBS process with an open mind. I have lost too much time in the past creating a full WBS and WBS dictionary, with lovely descriptions of everything, only to find that the next week the scope changes due to the whim of senior management, and all my work is rendered pointless. So this is definitely a process where tailoring comes into play, especially if your ‘predictive’ environment isn’t really that predictive!

You need a scope baseline in order to exercise change control, but you might not need to follow this process to the letter to get it. Just sayin’.

Create WBS Process

This is the fourth process in the Knowledge Area. We are still in the Planning process group.

While I might not use the full WBS process and terminology, the overall objective of this process is to break down the work into smaller components that are more manageable to deliver. You take your scope statement and basically turn it into chunks of work that people can actually do.

This is a process you can do at various points in the project so you might not be able to decompose everything at the beginning and that’s fine. Repeat the decomposition effort as you move through the project and more scope is known, or you find out you have to break it down further to get where you want to be.

Inputs

There isn’t much that has changed from the Fifth Edition with this process, and in fact the only small changes are here with the inputs. The inputs to this process are:

• Project management plan – instead of the scope management plan (the same change as we saw in the Define Scope process).
• Project documents – these were also added to the Define Scope process, and here replace the project scope statement and requirements documentation, which are now out. We’ve seen this trend towards more generic terminology across the whole Fifth-to-Sixth rewrite, and it is to be welcomed. While the scope statement, for example, is no longer specifically mentioned, you would want to refer to it (obviously). However, there’s now the explicit understanding that there might be other documents beyond the requirements documentation and scope statement that could be useful to you at this point.
• Enterprise environmental factors – no change here, it was on the list before.
• Organisational process assets – again, this was previously on the list so isn’t a change.

Tools & Techniques

Nothing has changed with the Tools and Techniques. The list still remains:

• Expert judgment
• Decomposition.

Although if you want to get picky I think they were listed in the other order in the Fifth Edition. Frankly, I don’t think the order of techniques matters much. I have never thought they were listed in priority order.

Outputs

Once again, there are no new or changed outputs to this process.

You still end up with the scope baseline, which was the ultimate goal of doing the WBS and ‘project documents updates’, which is so broad it could include anything. However, it’s really talking about updating any documents that need a reference to the final scope.

People often think of the WBS as a diagram, but it’s much more than that. The graphic is useful, but on larger projects they can get so complicated they are difficult to interpret. Also, I’m not a visual thinker – I expect that’s another reason why me and the WBS have never really got on.

The scope baseline includes:

The scope statement – you probably won’t need to amend this much from previously, but you might want to check it over as you work through the detail of the scope, to make sure it remains consistent.

• The WBS
• The work packages
• The planning packages, if you need to describe work without schedules (because the work package should have schedule information in)
• The WBS dictionary – a summary of all the work packages so you can easily reference them.

I do like the idea of work packages, and I do use this concept on my projects. If the language of work package isn’t understood, I create a terms of reference which covers the same main elements as a work package, and this can go to workstream leaders.

Next time I’ll be looking at the fourth process in this Knowledge Area: Validate Scope.

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I’ve worked on projects where all the resources are in house, but it’s more common (at least in my experience, to have some external supplies needed on a project. Whether that’s external legal advice or buying a software product, many project managers have to work with suppliers.

But what should you ask them before you start work?

This video gives you 3 key questions you should talk to your vendors about before the project starts. They give you a way to have a conversation about working practices and expectations before you start really building one of the most important relationships you’ll have on this project.

Watch the video below and then share what you typically ask suppliers in the comments below.

For more information about working with suppliers, and a bonus 2 extra questions to ask, check out this article.

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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?

It depends!

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.

That’s it.

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.

See Part 1 here

See Part 2 here

See Part 3 here

See Part 4 here

See Part 5 here

See Part 6 here

See Part 7 here

See Part 8 here

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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We need to measure project performance to see if the project is on track.

The graphic below shares some ideas on the different ways you can measure work performance. None of these suggestions is better than any other – they are all appropriate for different projects, environments and levels of project management maturity.

Do you use any of these approaches to measure progress on your projects? Why (or why not)? Let us know in the comments section below!

If infographics aren’t you thing, you can get almost the same information (with perhaps a teeny bit more detail) over at this article:

7 Contract Terms You Should Know