Let's take a quick review of the common challenges that a project manager faces when figuring a project budget. By increasing awareness of these factors, you can work proactively to avoid these in your own situation.
• Based on weak foundation The budget is built upon the planning foundation created by the WBS, resource estimates, effort estimates, and the project schedule. An inadequacy in any of these elements is directly reflected in the budget.
• Missing cost categories The budget needs to reflect all the costs that will be incurred or at least all the costs that the project is accountable for by the sponsoring organization. See earlier section for the list of cost sources that should be considered.
• No profit margin For projects that are sold to clients, do not forget to include the profit margin in your project budget and in your pricing decisions.
• Budget is pre-allocated In many organizations, due to the nature of their budgeting cycles and level of project management maturity, the budgets for projects are established (from high level estimates) before the complete work of the project is defined. In these cases, the budget is often the dominant constraint on the project; as a result, it will limit the amount of work that can be completed and the resourcing options available.
• Labor costs not tracked More of an issue for internal projects, but in many organizations it can be difficult for the project manager to define and track labor costs, especially for internal staff. The most common reasons for this include o Organizational policy that project managers do not track internal labor costs o Organizational policy to treat internal labor as "sunk costs"
o A mismatch between time reporting system/procedures and needs of the project
This last reason is important to understand and may limit your cost tracking options, or at least the level of detail information you can obtain.
Was this article helpful?
What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.