Telerik blogs

Through experience I’ve found that project success is usually determined by one or more of three factors – on time delivery, on budget delivery, and overall customer satisfaction (which is often based somewhat on the other two factors and many other things we may or may not be in control of).

For this three-part series, I’m going to be focusing on profitability on our projects – looking primarily at three key areas we can focus on during our project engagements to help ensure the highest level of project profits possible…or at least to protect what we are tasked with as a profit margin target. In Part 1, we’ll examine the most obvious area of budget management, before moving on to resource management and change management for parts 2 & 3.

While working to keep the budgets on my projects as healthy as possible, I’ve narrowed it down to three keep steps that I follow from the beginning and then throughout each project engagement. I take these steps to try to effectively and efficiently keep the project financials as on track as possible because budgets that are not monitored closely can quickly become unmanageable and unfixable leading to project failure.

Step 1 - Draft the initial budget

All projects start with a scope or statement of work and an estimate which also may be the sale price of the project to the customer. From this scope and the estimated price, the project manager can create a draft budget that – along with the draft project schedule and assigned tasks – will begin to take shape and take on detail as more detailed work is mapped out.

The end result should be a full-scale, end-to-end project budget showing all resources, equipment, vendors, and other items that will be charged against the project and when those charges are expected to occur. For resources, of course, this information comes from the timing of their detailed tasks in the project schedule. Starting with a well planned project budget that matches up with the price and scope of the project will help get the project off on the right foot financially.

Step 2 – Review the forecast weekly

It’s definitely not enough to create a detailed budget and then leave it alone. A budget that is closely monitored throughout the project engagement can never get too far out of control without the project manager knowing it. A 10% budget overage is easy to correct and is often even within the acceptable range for project success at the end of the engagement. However, a 50% budget overage is nearly impossible to recover from and is not going to be acceptable at the end of your engagement.

Review the budget on a weekly basis and revise it with the actuals from the previous week. Watch for trends and remember to revisit identified risks as you review and remap the budget on a weekly basis. If things are beginning to get off track budget wise, work with your team and customer on possible solutions before it gets out of hand.

Step 3 – Involve the team

Our project team members are often involved in multiple projects running concurrently. At the end of the week, when everyone is documenting how and where they spent their time, there are always a few hours that are hard to assign to a particular task or project. They were viable working hours, but by Friday afternoon it’s hard to remember every detail of the work you performed that week. Those ‘grey’ hours have to get charged somewhere and you’ll find that your project team members often place those hours on the project whose manager is not watching the budget closely.

Involve your team in your weekly budget analysis. Help them to understand how important the budget is and what it’s health status is on a weekly basis. If they know that you’re a project manager who is concerned about the project’s budget and profitability, your project will not be on the receiving end of those ‘grey’ hours.

In Part 2 of this three part series we’ll look at how resource management plays a big part in managing, protecting and hopefully increasing the profit margin on the projects we manage.

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Brad Egeland
About the Author

Brad Egeland

A Business Solution Designer and IT/PM consultant and author with over 25 years of software development, management, and project management experience leading initiatives in Manufacturing, Government Contracting, Gaming and Hospitality, Retail Operations, Aviation and Airline, Pharmaceutical, Start-ups, Healthcare, Higher Education, Non-profit, High-Tech, Engineering and general IT. Brad is married, a father of 9, and living in sunny Las Vegas, NV.


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