You are super excited to start work on a new project, and the creative juices start flowing as soon as you kick off with the first task. Everything seems to be going well, as you naturally gravitate towards the resources you need. Halfway through, a few unforeseen obstacles are hurled your way. Maybe you can still complete the project before the deadline, but these unexpected deviations have caused you to exceed the budget. How did this happen? In this blog, we have gathered 8 practical tips that will help you manage cost variances and stay on track with your project budgets.
Table of contents:
1. Define the scope of the project
2. Define the necessary resources
3. Set a realistic budget
4. Track time spent on tasks
5. Track expenses per project
6. Anticipate and revise changes
7. Communicate with your team
8. Utilize project management software
Having clear goals and objectives from the beginning is crucial to managing project budgets. Sometimes clients passionately talk about a vague concept that they want you to achieve. Team brainstorming sessions also tend to produce ideas that everyone is excited about, without having any concrete parameters yet.
No matter how eager you are to get started and indulge yourself in the creative process, make sure you define the exact deliverables first!
This means discussing all of the details with your client and/or team, making sure to:
Determine the goals and objectives
Determine the deliverables
Determine the quality of deliverables
Determine the timeline/deadlines
Define which tasks need to be completed in order to achieve these goals
Play the devils’ advocate if you must
Show some examples and mock-ups
With all of these things confirmed in writing, you won’t be leaving the success of the project up to chance. Moreover, your budget and resource planning will be based on this information.
Another potential problem that you nip in the bud, is avoiding ‘scope creep’. This term describes situations when more details get added to the project over time, ultimately causing the project to become much bigger than anticipated.
While the client might not even notice that they are asking for more than what was originally discussed, they will probably also assume the extra work that comes along with this is included in the price. Avoid this at all costs, literally, by always referring to what was confirmed in writing.
Once the scope of the project is clear, you can start with your resource planning. Efficiently planning your resources will depend on how well they are managed.
Thus, make sure you have a system in place to keep a clear overview of your available resources at all times, which includes:
Materials and tools
Don’t underestimate how important human capital is, as this doesn’t just mean knowing how many staff members you have on hand for certain hours and tasks. You also need to keep track of the specialized knowledge and skills that your team members are developing. Before you decide to outsource, make sure you know exactly what your team is capable of.
In reality, setting realistic budgets should be the first step of any project. The reason we switched it around in this list is that many projects start with an idea or concept before finances come into play. Ultimately, this will depend on your business processes.
Anyways, you would think this goes without saying, but setting realistic budgets seems to be quite a challenge for many.
In a previous article, we shared some detailed tips on creating realistic budgets, but one way to do this is by forecasting your expenses based on resource planning while adding an extra 10% for contingencies. This percentage is reserved for dealing with potential hiccups along the way.
The best way to set realistic budgets is to base them on data from past projects. With all of your project administration neatly organized, you will be able to find relatable data in no time. For recurring projects, you can simply consult past budgets. For new clients, you can review budgets from past projects that are similar.
Time is money, and time flies! So you ought to be tracking where it goes. If you are adding on freelancers or temporary staff per project, you want to make sure that every hour they work is accounted for. Most people don’t like to write their hours, but if all they have to do is set a timer, they are more likely to do it. Fortunately, there is an abundance of time-tracking tools and software available.
If you have permanent staff on payroll, tracking their hours is still crucial to keeping your projects under budget. Even with a team on salary, some projects turn out to be less profitable than you expected once you realize just how much time goes into them. The team could have been putting more time and effort into other things that yield more profits.
This is exactly why social media agency Dorst & Lesser uses Rodeo to track time spent by salaried employees on projects. It gives them insight into why some projects have taken longer than others.
Never charge any of your project-related expenses to your companies’ general expense account. This is a common mistake that many businesses learn from as they transition from rookie companies to professional organizations. Of course, they will be added at some point eventually, but as long as a project is still running, keep all these expenses separate.
Companies that just throw everything on one pile will find out in the long run that they have no idea which specific projects are driving up their overall expenses.
Project-based accounting practices will help you keep track of real-time expense data, as you can see exactly which activities are adding on costs. Reviewing every step that takes you closer to the budget max, will help you stay under.
Intuitive software can really simplify this process. Motion design & visual effects company BAIT studio confirms how they use Rodeo to keep a handle on their project budgets, as they are able to view project updates converted to cash.
Even when the scope of the project is clear, it’s only natural for changes and deviations to occur. It all comes down to adequate change management here.
This involves continuously evaluating the process, as each little change could greatly impact the budget. Once an obstacle arises, multiple solutions must be revised and discussed with the team and client before continuing ahead. Each change will also require re-forecasting, as small budget overruns are easier to correct than big ones.
The practice of cost variance project management is key here. Cost variance (CV) indicates the extent to which a project is over or under budget, relative to the work performed. Therefore, you must continuously compare the forecasted costs to the actual costs.
If the project you are working on is fairly complex, requiring a lot of flexibility, you might want to apply a suitable project management methodology. Agile project management methodologies in particular provide a framework for anticipating changes.
Excuse the repetition, but we can’t emphasize this enough. Throughout the process, keep communicating all the project updates to your team, your client, and other stakeholders.
Keeping everyone updated on revisions and re-forecasts keeps an open dialogue, which also encourages accountability within the team.
It’s also critical to your relationship with your clients and other stakeholders, as they will want to know how you are making sure objectives are achieved while staying within budget.
All budget-related decisions need to be discussed with them in a timely manner to avoid disappointment. Thus, have regular meetings and use real-time report data to base decisions on.
All of the previously mentioned practices that will help you manage your project budgets, can be supported, accelerated, and simplified with adequate project management software.
Highly intuitive, all-in-one project management software such as Rodeo connects all the steps of the project cycle. With the scope of the project clear, you can set up project budgets in Rodeo and view which of your employees are available. You are even able to make an overview of their skills to plan tasks accordingly.
Base your project planning on the budget attached, and copy and reuse data from past projects when applicable. As all of your project administration can be found in one place with Rodeo, it’s never hard to find relatable data for comparison.
The time tracking function is super easy to use as employees only need to set a timer, although time can also be added afterward.
Furthermore, expenses can be added per project, providing useful data in addition to the information collected by all other features. This data is used to generate comprehensive reports, but also smaller status reports. The quick views option, for example, will show you exactly how your project is progressing, and how it relates to your budget.
Are you fed up with your projects running over budget? Or do you simply want to make your projects more profitable? Use these 8 tips to start your 14-day free trial, or schedule your free demo today.