Project budgets are typically more difficult to prepare and adjust than departmental budgets. Projects typically consist of nonroutine activities. Departmental budgets are generally prepared annually and are often revised quarterly or semiannually. In contrast, project budgets are devised for the life of the project and are not related to a fiscal year. Revisions to project budgets are uncommon in the absence of a mistake in the original budget or a major change in the scope of the project. Unfavorable variances in a project are typically noticed more readily than unfavorable variances in a departmental budget. At the departmental level, variances are often accepted as being inevitable, but similar variances in a project are often frowned upon. In general, a project manager is typically held to a higher level of accountability than a department manager.
The major expense in most projects is likely to be for human resources. When estimating labor expense, consider both the labor hours and the skill levels needed to complete each phase of the project. Multiplying the hours by the labor rate at each level will give the total labor cost.
Also for each phase of the project, prepare a detailed budget listing the materials, supplies, and equipment requirements, which may vary widely. Some projects consist essentially of administrative tasks and do not require any special materials or supplies. Other projects may require considerable expenditures on property, plant, or equipment.
Fixed and variable overhead is another major category of expenses for most projects. Companies differ in how they allocate fixed overhead, but it is usually by a formula. Overhead may be allocated based on labor hours, labor cost, machine hours, square feet, etc. Variable overhead is allocated to the project like other project-specific expenses. In general, overhead is more likely to be allocated for longer-term projects. For shorter-term projects, senior management may decide not to allocate overhead expenses. It is essential to identify significant variances from budgeted amounts. Most companies require formal variance analysis at the end of the project. You should do a variance analysis at each phase of the project and take corrective action, if needed. If a phase is long, consider doing monthly variance analyses. All significant variances, whether favorable or unfavorable, should be investigated.
If actual expenses exceed budgeted expenses, investigate the cause. Budgets are closely tied to work schedules. Certain phases might be taking longer than estimated. You may have no choice but to demand more work from your team members. Also, your original assumptions and estimates might be wrong, or a significant change might have occurred in the scope of the project. You may need to request senior management to revise the project budget. It is sometimes possible to absorb unfavorable variances from one phase into the next phase. Your personal involvement in future phases of the project might also enhance productivity. You may also need to initiate budgetary controls to curb spending.
It is important to investigate all significant variances, not just the unfavorable ones. Sometimes expenses turn out to be less than budgeted. Examine why you are under budget. Is your team more productive than anticipated? Was there a significant decline in the price of materials, supplies, or equipment? Were your original estimates inaccurate? Is quality being sacrificed in any way to obtain cost savings? Do you expect to incur expenses in later phases that might wipe out any savings from the earlier stages?
Detailed Time-Schedule Preparation
Prepare a schedule for each phase of the project. You will be unable to complete your project on time without planning and controlling the time budget. Even a small delay in one phase of a project can have a significant effect on the overall completion time. Many tasks in a project are interdependent. A small isolated delay may not be a problem, however, when activities are interdependent, a small delay might throw off the entire schedule.
The schedule should be reasonable and realistic. Some projects are plagued by delays. If you have been unable to complete the initial phases on time, it is unlikely that you will complete the project on time. An effective project manager knows how to set up a realistic time budget and how to follow through on the budget. Time-management skills are essential characteristics of a good project manager.
When planning the initial schedule, budget a little slack. But keep in mind project deadlines are often imposed and you may have no choice but to work within the imposed guidelines. Sometimes a delay in one phase of the project simply has to be overcome in a later phase.
As the project manager, you are responsible for staying on schedule and meeting the deadline. It does not matter what caused the delay. You are personally responsible for controlling the activities, monitoring progress, anticipating problems, and taking corrective actions before delays cause you to miss the final project deadline.
Although your goal should be to meet the project deadline, it is unwise to let the quality of the project suffer. Your final results should be accurate and of high quality, even if it means requesting an extension. You should try, of course, to work faster, put in overtime, or modify your original plan in order to meet the deadline. Ultimately, if the trade-off is between meeting the deadline or doing quality work, the project’s quality should take top priority.
Project Scorecard
A project scorecard measures the characteristics of the deliverables produced by a project. It also measures the progress of the internal project processes that create those deliverables.
Exhibit 2 provides the types of metrics that could be reported. This list is not exhaustive by any means but may help provide additional ideas for you.
Exhibit 2: Project Scorecard Metrics
| BALANCE CATEGORY | SAMPLE METRICS |
| Cost | Actual cost vs. budget (variance) for project, for phase, for activity, etc. |
| Total support costs for x months after solution is completed | |
| Total labor costs vs. nonlabor (vs. budget) | |
| Total cost of employees vs. cost of contract vs. cost of consultant (vs. budget) | |
| Cost associated with building components for reuse | |
| Total cost per transaction | |
| Ideas for cost reductions implemented and cost savings realized | |
| Effort | Actual effort vs. budget (variance) |
| Amount of project manager time vs. overall effort hours | |
| Duration | Actual duration vs. budget (variance) |
| Productivity | Effort hours per unit of work/function point |
| Difficult to | Work units/function points produced per effort hour |
| measure | Effort hours reduced from standard project processes |
| accurately unless function | Effort hours saved through reuse of previous deliverables, models, components, etc. |
| points are | Number of process improvement ideas implemented |
| counted | Number of hours/dollars saved from process improvements |
| Quality of deliverables | Percentage of deliverables going through quality reviews |
| Percentage of deliverable reviews resulting in acceptance the first time | |
| Number of defects discovered after initial acceptance | |
| Percentage of deliverables that comply 100 percent with organization standards | |
| Percentage of deliverables that comply with organization architectural standards | |
| Number of customer change requests to revise scope | |
| Number of hours of rework to previously completed deliverables | |
| Number of best practices identified and applied on the project | |
| Number of successfully mitigated risks | |
| Customer satisfaction with deliverables | Overall customer satisfaction (survey) with deliverables in terms of:ReliabilityMinimal defectsUsabilityResponse timeEase of useAvailabilityFlexibilityIntuitivenessSecurityMeets customer needsUnderstandableUser documentationApplication response time (calculated by the system)Number of approved business requirements satisfied by the project |
| Customer
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