The budget process is often fairly clear cut, with reviews and approvals a well-worn process. But some project teams continue to make a handful of base-level mistakes that could cause them serious problems down the road. If your Project Team encounters challenges in the budget development cycle, consider if you’re inadvertently falling into one of these bad habits.
Using bids from previous projects. It’s usually an acceptable practice in the earliest stages of budget estimating. However, some project teams—either in an effort to compress the budget creation timeframe or simply out of laziness—continue to rely on old figures well into the development phase of the project. Sometimes you can actually get away with this. There are services and materials that experience very little fluctuation in price, and the market conditions during a very recent project may indeed be similar to the current environment.
Project Teams primarily run into trouble with this practice in two areas. One is when they managed to negotiate a killer deal earlier that is no longer available. Perhaps a manufacturer had a surplus of materials available or your team happened to sneak in before raw material reserves dried up. When the cost of a normally static resource suddenly changes, or when demand spikes for materials or labor, those old project figures won’t be of much use. The team may then be stuck trying to adjust (or justify) its budget estimates very late in the project’s lifecycle.
Getting too many bids. Unless your organization is working under some form of open bidding requirements where you don’t have control over the number of vendors involved, obtaining a lot of proposals may be less helpful than you think.
One common problem is the time necessary to wade through a pile of bids, some of which shouldn’t have even been accepted. It’s often a waste of the project office’s resources to review every bid in detail without some sort of initial vetting process.
Another issue is that it can be surprisingly difficult to compare multiple bids without first ensuring they’ve all been prepared against a baseline set of requirements. Those may range from an accepted format for bid submittal (Excel spreadsheet? Hard copy?) to the type of information that’s included (details on bonds or insurance limits, for example). Selecting the right estimate means knowing your team has all the data it needs and that a fair comparison against competing bids has been carried out.
Submitting partial budgets for review. To keep the budget process moving, PMP®s will sometimes submit budget estimates that aren’t yet complete. It’s a valid practice as long as the team follows a few guidelines. The first is to ensure the overall budget is comprehensive, meaning line totals should be included for every budget item. Partial budgets can be useful tools during the early stages of a project, but the overall picture must encompass everything waiting to be finalized. Challenges arise when a sponsor or executive assumes a partial budget is actually complete, and must then later approve “additional” funds when the rest of the estimates are finally ready for submittal.
The second strategy to ensure that partial budgets don’t later come back to bite you is to include contingency line items in those locations where final numbers are still pending or where one budget item may be dependent on another that has yet to be confirmed. You may decide to remove these contingency figures as the budget process moves toward completion, but in the interim they will serve notice to anyone reviewing the numbers that some portion of the budget isn’t yet ready for prime time
