As previously said, budget cuts will be detrimental to project cost estimation. I believe that the timing of the cut can determine its ultimate damage to the project. Essentially everything downstream of the cut will have to be conducted in a much tighter window. The pressure to succeed and execute will be even higher since there is less wiggle room. If the cut is drastic enough, it can entirely halt all downstream processes and can essentially lead to a wasting of all upstream resources.
In my company, the project managers will prefer to continue with a project even if a cut occurs. They do not want to waste resources that have already been invested in a project. As a result, they come down extremely hard on the people working on the remaining segments of the product. In order to minimize waste and make sure the project can be completed.
It’s a matter of Change of Management on the project, and as such should be already part of the project plan in the first place. Every project will face issues of one kind or another, and project plan should provide how such changes are handled formally within the project.
In this case cost estimation is related to elements needed in order to achieve a final goal or deliverable objective. If budget is cut, PM needs to perform analysis of the impact and take proper action based on the result of the analysis.
It’s the customer that pays in the end, and PM just needs to make sure that they have all the data required to make right decisions on Steering Committee.
Within my company, budget cuts are typically handled through re-distribution of responsibilities. The project manager of my team took on a lot more responsibility once cuts were administered. Additionally, we borrowed resources from other groups that we closely worked with through collaboration with other managers. At the end of the day we were still one company and needed to get product moving so even though there were some hurdles, most managers complied to the request and lent a hand while we were waiting for additional resources.
Budget cuts doesn’t affect the cost estimation of the project. However it does affect the scope or quality of the project. A good project manager needs to resist that pressure and make sure that any cuts in project spending are done consciously with full knowledge of whatever impact those changes might have.
This are some steps that project manager can handle budgets:-
Produce an estimate. Compile a realistic estimate with your team. Make sure it covers all the project’s phases and activities and that it contains sufficient contingency. Account for all people costs as well as materials, hardware and software
2. Achieve a baseline budget. Formally get the estimate signed off by the sponsor and steering committee and ensure that the actual funds get released and allocated to the project. You now have a baseline budget to work from.
3. Establish monthly budget. Determine what you expect the project’s monthly running costs to be based on your knowledge of the project’s resource plan and schedule. Document the monthly expected expenditure in a spreadsheet encompassing the entire project.
4. Establish cost controls. Set up clear cost controls and sign-off responsibilities for the different types of expenditure. Consider who will be approving and signing off on timesheets, materials, hardware, software and vendor invoices. This part is crucial as this is where you control the actual costs that will be booked to your project.
5. Record actual costs. Check the actual amount of money accounted to your project at the end of each month. This figure will normally be provided to you by the finance department. Record this amount in your spreadsheet so that you can directly compare it to your budget.
6. Calculate metrics. Calculate and update your cost metrics at the end of each reporting period. Measure how much money the project has spent of the total budget compared to how much money you had expected it to spend at this point in time. Include your cost metrics into your project reports and steering committee presentations.
7. Update forecasts. Adjust your forecasts on a monthly basis to cater for any changes that have taken place. Changes could stem from the actual running costs being higher (or lower) than forecast or estimates being
higher (or lower) than forecast.
8. Communicate. Create transparency to senior management around the project’s costs by including your cost metrics and key numbers into your project reports and steering committee presentations. If for some reason your costs are not on track, treat it as an urgent issue which must be analysed, resolved and discussed with the steering committee.
