Control and Manage Costs Established in the Project Budget Tasks
The Project Manager must know the extent of his/her authority to make budget decisions. For example, is the Project Manager allowed to authorize work that requires additional hours of salaried personnel time, or must employee time extensions go through the same approval process as contract personnel or equipment purchases? Often, the Project Manager must work closely with fiscal and contract personnel in other divisions to track and control costs. These relationships must be established early in the project management lifecycle. For New York State projects, project staff must record hours expended and the Project Manager must use salary title and grade information to determine the dollar cost of the personal services. Part of the Project Manager’s job is to ensure that the project is completed within the allocated and approved budget. Budget management is concerned with all costs associated with the project, including the cost of human resources, equipment, travel, materials and supplies. Increased costs of materials, supplies, and human resources, therefore, have a direct impact on the budget. Just as task duration estimates are tracked carefully against actuals, the actual costs must be tracked against estimates. The same analysis should be conducted and the same questions asked: What other aspects of the budget were constructed based upon these estimates? Changes to the scope of the project will most often have a direct impact on the budget. Just as scope changes need to be controlled and managed, so do changes to the Project Budget. It is the responsibility of the Project Manager to closely monitor the financial performance of the project and take responsibility for addressing cost-related issues as they arise. In addition, the Project Manager should always be aware of the effect his/her decisions may have on the total cost of the project, both before and after the product or service is implemented.
Monitoring the financial performance of your project on a regular basis is the only way you can keep a handle on the Project Budget. Don’t let the Project Budget get away from you – get into the habit of updating the schedule and analyzing the financial impact on a regular basis. Taking the time to do these administrative tasks will save you countless hours of reconciliation and balancing down the road, and warn you of impending cost issues!
There are several financial characteristics the Project Manager should monitor to determine if a project is performing satisfactorily against its budget. Most often, these values are entered into the scheduling tool by the Project Manager and calculated and displayed using its corresponding capabilities. Some budget- related characteristics the Project Manager should examine each time the schedule is updated include:
- Original Contract Value: the original estimated budget (cost) that was approved by the Project Sponsor.
- Total Approved Changes: the total cost of approved changes as a result of change control.
- Total Current Budget: the sum of the Original Contract Value and the Total Approved Changes. This is the most current approved Project Budget.
- Cost to Date: the actual money (cost) expended to date on all tasks and materials in the Project. The labor costs can be calculated by the scheduling tool based upon the time the Project Manager tracks against the tasks in the Project Schedule.
- Estimate to Complete: the money (cost) estimated to be expended to complete remaining project tasks. The Project Manager must verify and assess the impact of team members’ revised effort estimates to complete tasks. The Project Manager must also validate that the remaining material costs are in line with the budget. These have a direct effect on the Project Budget.
- Forecast Total: the sum of the Cost to Date and the Estimate to Complete.
- Project Variance: the difference between all estimated and all actual money. It is calculated by subtracting the Forecast Total from the Total Current Budget. A positive variance means that the actual cost of the product is less than the budgeted cost. A negative variance means that the actual cost of the product is greater than the budgeted cost.
It is of utmost importance for the Project Manager to take the time to analyze, understand, and document the reason for variance every time the Project Schedule is updated.
Whether positive or negative, the Project Manager needs to understand what is causing variance and take proactive steps to keep it under control. The Project Manager must be able to explain the cause of variance to others and determine if corrective actions need to be taken to maintain the project’s budget. For example, if a negative effort variance develops while a task is being executed, then more money may be needed than originally planned for, potentially impacting the success of the project. On the other hand, some tasks may finish ahead of schedule, freeing up money and offsetting the negative impact of those that finish late. The Project Manager must remain aware of such situations, working with the Project Team members and Beneficiaries to determine the causes of variance and to mitigate any associated risks. It is the responsibility of the Project Manager to ensure the currency, accuracy, and viability of the Project Schedule as the primary mechanism for managing the budget. He/she must know and be able to communicate exact project status relative to budget, impact of changes, estimates to complete, and variance. This information must be known by task, process, phase, resource, and deliverable and be communicated to the Project Sponsor as part of the Status Meeting.
- The cost tracking process
- The project triangle