Is your project running out of money? Managing project budgets can be a huge challenge. Labor and material costs continue to rise, suppliers demand premiums for niche services, and accelerated project timelines require more costly support to maintain target completion dates.
Knowing that funding is lean for many companies and extra money might not be available, what can you do if it looks like your project will burn through its budget before everything is done? We’ve put together five questions that can help you understand exactly where you stand and what your options are to get your project’s financial performance back on track.
1: Are our budget forecast and actual spending figures accurate?
Before you do a deep dive into your project’s financial health, take a step back and confirm that you’re working with accurate and current numbers. Accruals, various accounting methodologies, prepay agreements, and data errors can all lead to a misrepresentation of your initiative’s current budget position. Something as simple as failing to update your forecasted spend to remove the actuals to date can make it appear that the project is in worse shape than it really is.
2: When was the last time our actual expenditures matched our forecasted spending?
Identifying when your financial picture got out of whack can help you develop a solid recovery plan. If you’ve been over budget for a while, you may need to take drastic steps, such as scaling back your initiative’s deliverables to fit the reduced funding (and limited time) that you have left. A recent overage may require only a minor rework of your remaining project activities to reduce costs. Can your in-house maintenance team finish the installation of a new piece of equipment? Will end users still get the knowledge they need if you swap out expensive in-person instruction for cheaper on-demand digital training?
3: Can we consolidate our outside provider relationships?
Once your initiative has begun, you may discover that a vendor has capabilities beyond what you contracted with them to provide. Those additional services could translate into an opportunity to reduce the number of outside partners and consolidate—for lower total costs—your support needs. You might be able to reduce costs such as travel or onsite visit fees. A vendor may also offer better pricing per service when you give them more of your business.
4: Does any area of our project have excess funding?
Discovering that one line item is exceeding its budget may be less of a problem if another item has money left over. Before you throw your entire project financials into the air, look for opportunities to use available excess monies to cover the shortfall. Some vendors don’t include manufacturer discounts or other cost savings in their initial quotes, meaning your actual invoices could be significantly less than forecasted. Lower-than-expected material consumption can also free up some dollars, and you may even be able to recapture contingency budgets if the associated activities didn’t need to dip into them.
5: Have we optimized our labor and materials line items?
Depending on where your spending has gone overboard and the size of your outside labor and supply forecasts, you may be able to find some areas to cut within those line items. Consider the possibility of using standard shipping services rather than paying extra for an expedited carrier, for example. Or you might opt to have craft labor work done during regular business hours instead of incurring the upcharge to complete somewhat disruptive activities over a weekend. There will likely be tradeoffs with this approach, and you’ll need to balance stakeholder and sponsor expectations against your need to trim expenses.
PMAlliance uses a team of highly experienced and certified professionals to provide project management consulting, project management training and project office development services.
