Successful Project Management

Part 6: Here’s How to Plan Your Budget

Welcome back to the blog series about “Successful Project Management.”

Oh no! We can’t escape project management in 2020, either 🙂

I notice it AGAIN and AGAIN.

You start with your project “just like that”. You haven’t got a real plan yet, just go for it. No structure, no stakeholder analysis, no sound financial planning.

And at some point, you find yourself adrift, at sea, about to go under.

Sounds familiar? Well, then, first read the articles on the pre-project phase, stakeholder analysis, process management and project structure plan again to refresh your memory.

Now you’re steeled for today’s article.

Because today it won’t be boring again, either.

Because today, it’s about planning your budget.

And because this is a super important topic, for which there are own experts, I’ve invited one such today to expound the topic for you. My dear ex co-worker Romana Rongitsch, who recently set up her own company  r2c2 Romana Rongitsch Controlling Consulting e.U.

Remember: we recently created the project structure plan. And now we move to budget planning. Have fun!

Expert Romana Rongitsch says…

The project goal  has been defined, depending on the project a consortium has been found and the work packages, including responsibilities, have been defined. The worst is over, one would think.

But the project proposal still needs a budget.

The starting point for cost planning is the project structure plan.  It contains information about what work packages are planned, who is responsible, and how long these work packages will take. It thus delivers the volume which is then cast in a table.

Here’s an example of such a table:

Rounded off with cost category, the unit and the price per unit and the cost structure, the result is quite considerable. 

Sounds simple and complicated at the same time? The advantage of this approach is: the more structured the available data is, the simpler it is to analyse budget forecasts and – if necessary – quickly and easily make provisions.

Realistic Planning

Planning realistically often poses a big problem.

Because it involves so many different approaches. Ask yourself, for example, “Have there been similar activities in the past? Do I know anyone who is specialized in this field? Is it possible to analytically derive a cost assessment?”

It’s often helpful to create a budget version and at the same time work out an optimistic and pessimistic version too. This makes it easier to assess whether the assumptions are plausible.

15,324.795 euros, please!

The important thing in all these considerations is that costs are planned at one level, which also makes sense later on for checking whether the costs are in the plan.

Is it necessary to split the travel costs for recurring team meetings into flight, rail and hotel costs per meeting, or does it suffice to group them under one cost item per meeting?

One is quickly tempted to list the known amounts down to the last cent after the decimal. However, in the case of large, but as yet uncertain sums, which only become more clearly defined in the course of the project, it makes sense to step back again and again so as not to lose sight of the whole.

Furthermore, it helps to keep in mind – during the application stage already – at which level the internal and external controlling will/should take place. This very quickly reveals how detailed the cost planning has to be. Setting up the financial part transparently and systematically from the beginning saves a lot of time and nerves, both before and during the audit and reporting phases.

Pay, please! … What, no money?

In spite of all the efforts revolving around costs, you should not overlook the funding side of things.

Many projects are not 100% funded. Often you have to finance a part yourself.

That’s why you ought to clarify from the start where the rest of the money will come from. A frequently underestimated problem is liquidity planning. Once a project has been approved, the first tranche is paid out at the start of the project. Depending on the funding programme, the second tranche is paid out only after proof of how the money from the first payment was used has been received and approved.

The following diagram illustrates the problem of potential funding gaps:

Yet, before the second tranche is paid out, the project continues to roll, and the costs have to be pre-financed by the company. Even if breaking the costs down over months seems exaggerated at first, you ensure that you identify funding gaps well ahead of time and enables you to make appropriate provisions.

Many thanks, Romana, for this important and informative article!

In the next article, Romana will tell us more about project reporting.

And now it’s high time for you to digest what you’ve read and start crunching numbers. If you get stuck, at least you now know who to turn to 🙂

r2c2 – Romana Rongitsch Controlling Consulting e.U
Lerchenfelder Straße 150-154/2/61, 1080 Wien
+43 676 725 1977
romana.rongitsch@r2c2.at
www.r2c2.at

Best wishes,
Birgit