Budgeting Basics: Make Budgets That Work For Your Organization
Although many project managers are not financial managers, the first step to effective cost management is to create a plan based on approved estimates.
As a non-financial manager, it’s crucial to identify and manage costs that have the most significant impact on a project. When creating estimates make sure to include the time of all resources based on the resource rate, expenses identified within the scope of the project, travel costs and unforeseen expenditures.
After creating the initial cost performance baseline, you may need to negotiate additional funds with the project’s sponsor. Bring the cost performance baseline as back-up to identify key areas of project costs with the management stakeholders.
The project manager must work with the team and stakeholders from the finance and accounting organization to create a cost management process which will define formal procedures for identifying, recording and approving project costs.
This process should also include steps for continually reconciling the estimates to the actual cost for goods and services. If items cost more than estimated, you’ll need to:
It’s also essential to balance your vendor and contract relationships. It is crucial to identify quality vs. quantity. There may be areas of your project that can go to the smallest bidder; however, if a vendor has a reputation of taking longer on projects, the smallest bid can be detrimental to the timeline and
budget. Investigate and seek references prior to getting involved in any contractual agreement.
- Determine reason for the variance
- Document the findings
- Determine actions for bringing costs in line with the budget
For continual cost management, it’s important to investigate all the above areas as a general guideline
and to continuously reconcile the financial transactions.
Your role is to make the project a success just not at any cost.
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