Budget Basics

You need a budget to control and document project expenses—before the project work begins. When you are creating a feasibility plan, you’ll no doubt include facts on the cost of the project and any ROI for the project. Now, once the project has been approved, or approved based on the financial obligations, you have to do a touch more research. Any bean counter in your company wants to know what exactly your project will cost. As any project manager who has worked on IT implementations will tell you, “It’s not as easy as it looks.”

You also need a budget to get your arms around the scope of the project and what you can afford to include in your implementation. There will be instances when your budget won’t be approved and you’ll have to cut any extras or settle for less to complete the project. In other scenarios, the project may have to be delayed until funds are available to continue. The worst-case scenario, of course, is that the project is approved but the funds to support the project are nonexistent.

A budget will serve as a financial guide to where the project is headed. Project managers who do their homework will have a clear vision of what the deliverables of the project will be and what it takes to reach those deliverables.

As you begin to create a budget, you need to come up with a plan of attack. There are numerous ways to create a budget, some better than others. One approach IT project managers have a tendency to use is to write down a list of all the products that the company needs to purchase to complete the project and add up the cost for each. At first glance, this seems like a viable solution; however, it opens the door for potentially overlooking important details, lack of true planning, and error. A better approach is to divide your project into phases and extract cost estimates for each phase of the project. This approach, called phased gate estimating, is ideal for large projects.

Phased gate estimating allows project managers to forecast the exact expenses for the pending phase of a project and provide more general estimates for phases downstream. The immediate actions of a project should be foreseeable, as opposed to actions that will happen way off in the future. For example, you probably know what you’re doing this weekend, but don’t know your plans a weekend a year from now. Because IT changes so rapidly, accurate estimates are available for actions in the present tense, and less so for those in the future.

A key factor in any project is the Work Breakdown Structure (WBS). The WBS is a deliverables-orientated decomposition of the project. From these lists of deliverables, the project manager can derive the activities required to deliver each component of the project. The major deliverables of the project, often called project milestones, are ideal for using as phases within a project. For example, a project to create a new application will have some logical, visible milestones between its beginning and completion. A project manager using phased gate estimating can predict the cost of the project through the next foreseeable milestone.

When a project calls for phased gate estimating, the WBS will reflect the approach as well. A software development project has some obvious phases just like a hardware roll-out project will as well. A WBS in these instances can reflect the deliverables within the immediate phase with a nod to downstream phases that will come later in the project.