Today’s chapter was focused on learning about creating a budget, seeing budget templates with how they are created in google sheets, maintaining a project budget, overcoming budgeting challenges, developing a project budget into google sheets, and a short introduction to budgeting terms.
Creating a project budget
The main things that I took away from creating a project budget are the techniques that you can use to make a project budget. From researching past projects that are similar, asking experts both internally and externally, creating a baseline and using a bottom-up approach to make a project budget.
Creating a baseline budget and using the bottom-up approach is probably the most active part as you are actively researching the cost of materials and resources while researching past projects and consulting experts can help anticipate costs of the project.
The interesting concept that they taught was to make sure that your project budget wasn’t above your budget but also be below your budget. As being either below or above budget can result in consequences such as the company not having enough money if you are above budget or having budgets for future projects slashed if you go under budget.
So, it’s important to have your estimated cost be as close to the final cost. While the estimated cost will change due to shifts in scope or due to risk management, the final cost will always be the end result once the project is completed.
Maintaining a project budget
The way the course focused on maintaining the project’s budget was to review the budget upon completion of the project milestones. After a deliverable of the project is completed, it is suggested to review and adjust the budget and see which tasks were above or below budget.
They also taught about fixed contracts and time & material contracts. Fixed contracts are as they sound, they are fixed costs in the project that should be paid out when the milestone is completed. Time and material contracts are the adjustable costs from a project such as hours worked or travel and meal costs.
The last part they focused on maintaining a project budget is cost control. To be proactive in maintaining the budget and prepared to act when budget misses happen.
The chapter also went over various challenges that a project manager could face when it comes to budgeting a project.
One challenge is having a pre-allocated budget, so the budget is set before the project even begins. Their solution is to work with the client and clearly create a scope that has appropriate expectations.
Another challenge involved the total cost of ownership or TCO. While I understand the concept, which is to be able to calculate the total cost of the lifetime of the product purchased including costs like maintenance. They course didn’t go over how to actually apply the total cost of ownership to a budget or how does maintenance apply to the project’s budget when it comes to documentation. I did wish this had a bit more focus.
The final challenge for budgets is scope creep. Basically, a shift in the goals and deliverables of the project. Which can be something as changes from the stakeholder or labor done that isn’t related towards the goal of the project.
The last reading of the chapter was going over some budgeting terms that a project manager might see when working on a project.
Terms like cash flow being the inflow and outflow of cash on the project. Another set of terms explained was about how to categorize expenses which the two most common was CAPEX (capital expenses) and OPEX (operating expenses). Captial expenses being the long-term expenses such as equipment and vehicles, while operating expenses are defined by short-term or consistent expenses such as wages and rent.
The last budgeting term was making a difference between contingency reserves and management reserves. While a project manager should have a set reserve budget that was included in the project proposal, management reserves differ by unidentified risks in the project. To access management reserves, you need approval from the project sponsor or stakeholder to use management reserves.
The one part of the chapter that I preferred was having a hands-on exercise to make a project budget based on the Office Green example and their project Plant Pals.
The exercise was very straight forward. Having to parse the tasks and milestones and determining how much the equipment cost and the hourly wages of the staff to calculate the total cost made the budget template easy to understand.
It is easy to see how important budgeting is to project management and documenting each part of the budget before the project begins can help keep a project on track towards success.