Project Management: 4 Ways to Manage Your Tight Budget

Project managers do nothing else right they need to meticulously manage their budgets. Here are four strategies for maintaining control of your project budget and preventing massive cost overruns.

1. Continually forecast the budget. A project run without frequent budget management and reforecasting will likely be headed for failure. Why? Because frequent budget oversight prevents the budget from getting too far out of hand. A 10 percent budget overrun is far easier to correct than a 50 percent overrun. Your chances of keeping the project on track with frequent review of the budget plan is far greater than if you forecast it once and forget about it.

2. Regularly forecast resource usage. Just as the budget needs to be constantly revisited to keep it on track, you need to do the same for resource usage, since the people working on a project contribute to its cost. Project managers should review the number of people currently working on a project and the project's future resource needs on a weekly basis . Doing so will ensure that you're fully utilizing the resources you have and that you have the right resources ready for the rest of the project. Regularly revisiting the resource forecast will help keep your project budget on track.

3. Keep the team informed. Always keep the project team informed of the project budget forecast. An informed team is an empowered team that takes ownership of the project. By keeping the team informed of the budget status, they will be more likely to watch their project charges and far less likely to charge extra 'gray area' hours to your project (those are the hours that they know they worked by aren't sure what they were working on.)

4. Manage scope meticulously. Scope creep is one of the leading causes of project overruns. As unplanned work finds its way into your project, billable hours mount and the project budget can get out of control. Project managers must carefully manage scope by creating change orders for work that isn't covered by the project's initial requirements. Change orders authorize additional funding for the project to cover the cost of extra work, and thus keep the project to its new budget.

The project budget must be a living part of projects—something project managers review with their teams and their stakeholders on a regular basis. Project managers who carefully watch budgets throughout the lives of their projects will keep stakeholders and management happy and thus experience greater project and career success.

The Devil's Triangle of IT Project Management

The Devil’s Triangle describes a basic set of dysfunctional relationships that push many projects toward failure. As you have heard in other contexts; there are three people in this marriage.

Three parties participate in virtually every major software deployment: the customer, system integrator or consultant, and the software vendor. Since each of these groups has its own definition of success, conflicts of interest rather than efficient and coordinated effort are built into and affect many software implementation projects.

The Devil's Triangle

The Devil’s Triangle explains how economic pressures can drive software vendors and system integrators to act in ways that do not serve customer interests. It also offers insight into the ways some enterprise software customers damage their own projects.

Devil’s Triangle relationships are a short sighted and self-interested way of life for too many participants in the enterprise technology landscape.

Schizophrenic software vendors and split loyalties

Clearly, Software companies want to sell product licenses to end customers. However, the vendor’s loyalties are sometimes unclear, because 3rd party system integrators have a great deal of influence in most software deals.

Beware the Systems Integrator

As a result, although the customer buys the license, the system integrator may have a closer, better, stronger, relationship or partnership with the vendor. The link to the customer is more tenuous.

Although the customer is certainly important because he finances the deal, some integrators offer incentives to enable critical 'deal flow' to the vendor, making the integrator a key part of the software company’s sales process.

So who wins when a software vendor’s loyalties to the customer conflict with its relationship to the system integrator?

Wacky system integrators: billable time vs. customer success

When a project goes over-budget, the customer pays much of that extra cost to the system integrator in the form of additional services fees. In the best cases, these fees enable the service provider to perform additional, high value work improving business outcomes for the customer despite the higher cost.

Beware the Dual Incentive

System integrators sometimes have a dual incentive to build long-lasting customer relationships while racking up change order fees if the project runs late.

Sometimes, this situation creates an negative incentive pushing the integrator away from the goal of completing the project on time and allowing the cash to continue flowing, out of the customer's budget.

For these unscrupulous consultants, unsuccessful projects represent “annuity consulting” revenue coming at the customer’s expense.

This conflict has been described before:

• In private moments, many third-party consultants dream of long projects, where billable hours and customer purchase orders flow like water.
  
• This kind of annuity consulting is never good for the ERP buyer.
  
• Almost by definition, when projects exceed their schedule and budget, the extra dollars go into the consultant’s pocket.