Chapter 7 – Scheduling Resources and Budgets

7.15.Managing Budget

Budgets are an outcome of developing estimates. Once a budget is approved, the Project Manager needs to manage the budget. The Project Manager is responsible for monitoring the financial performance of the project and making financial decisions. Sometimes the Project Manager has full authority over spending; while other times, expenditures need to be approved by another authority in the organization.

Projects seldom go according to plan in every detail. It is necessary for the project manager to be able to identify when costs are varying from the budget and manage those variations.

Evaluating the Budget During the Project

A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders. It is necessary to establish an understanding of how this progress will be measured and reported.

The Project Manager regularly evaluates whether the project is ahead, behind or on track with spending. The budget would include estimates and then “actual expenditures” within a certain period of time. This could be a month, quarterly or yearly. The Project Manager would be responsible for reporting financial information to accounting departments and other stakeholders.

If the budget is overspent, the Project Manager would need to take corrective action.  It is important that the Project Manager be transparent in reporting good news, as well, as bad news.  The Project Manager may seek ideas from accounting personnel, and the project team on how to get the project back on track.  Constructive feedback is valuable to reviewing problem areas, and adjusting to ensure success.

Example: Reporting Budget Progress on John’s Move

In the John’s move example, he estimated that the move would cost about $1,500 and take about 16 days. Eight days into the project, John has spent $300. John tells his friends that the project is going well because he is halfway through the project but has only spent a fifth of his budget. John’s friend Carlita points out that his report is not sufficient because he did not compare the amount spent to the budgeted amount for the activities that should be done by the eighth day.

As John’s friend pointed out, a budget report must compare the amount spent with the amount that is expected to be spent by that point in the project. Basic measures such as the percentage of activities completed, percentage of measurement units completed, and percentage of budget spent are adequate for less complex projects, but more sophisticated techniques are used for projects with higher complexity.