ETC + ACWP = EAC
10 Manage the model
Your boss presents you with a complex spreadsheet or a number on the back of a postage stamp and says: ‘That’s the way we always plan budgets.’ It’s a common scenario: the company has been doing things this way for years, and no one really remembers why. It’s just the way things are. But what if the corporate way is not the right way for you? The principles of budget setting and monitoring discussed in this section remain the same, whatever methodology is proposed. You will be surprised at how much flexibility you can find in budget processes, which is just as well, as you will no doubt be working with disparate teams, using different calculation models and with different levels of understanding about how budgets work.
Having the confidence to take a slightly different approach from the cor
porate norm may mean the difference between actually understanding what you are doing and letting money slip through your fingers.
I T ’ S D O W N T O Y O U
Ketan Samani, a senior project manager in the financial services sector, has handled many budgets. ‘In my opinion, good budget control and monitoring spend during the project lifecycle are not down to a model or methodology, but a good project manager,’ he says. ‘Their personal qualities and ability to negotiate are important.’
Samani is an ecommerce specialist with a background in sales and mar
keting. His experience managing projects has taught him the value of nego
tiating budget constraints alongside other aspects of the project. ‘At best, again in my opinion, most projects are started without a comprehensive study of the project’s purpose, and therefore the value they can deliver is always limited,’ he explains. ‘This can happen consciously or unconsciously, depending upon the sophistication of the team managing it.’
Samani is working on implementing a project management framework and governance model in his company that advocates the use of monthly budget reports based on a standard template. However, he is clear about how to get the most value from tools like these. ‘One can provide on- and off-line project management models and tools for budget management, but it is down to the operator to use them efficiently,’ he says.
Many ‘flavours’ of budgeting are used within organizations. Some will require a full business case before any work is done, including net present value calculations, payback periods, internal rates of return and all manner of other accounting principles that another book can explain better than this one.
Some systems are hideously complicated and come with a health warning:
you risk spending your entire time making sure figures are entered into the
Manage the model
right boxes so that ten other spreadsheets can update automatically. That’s fine if you enjoy that sort of thing, but don’t let your passion for an accounting package undermine your ability to do the rest of your job. Other organizations will expect quarterly forecasts. Others will be surprised if you even ask the question about what system they normally use.
H I N T
Whatever the methodology advocated by your company for setting and managing project budgets, make sure you under
stand it. And if you don’t, at least understand the basic prin
ciples as a minimum and devise your own way of recording the relevant information that satisfies your needs as the pro
ject manager and the needs of the finance team or whoever has authority over the budget. Do the minimum for the ‘offi
cial’ methodology and complete your monitoring and tracking with your own method.
You may need to find a way to complete or modify your company’s meth
odology for another reason: it might not be sufficient for dealing with the type of project you are working on. Project budgets often come from various different places. Head office might be funding half of it, with the rest paid for by the local office. Your budget might be in a mix of currencies or spread across two or more financial years. In research done with a group of project managers, operational managers and team members, the most frequently cited limitation of the methodologies and tools they were expected to use was their inadequacy for handling complex projects.20
T I P S F O R G E T T I N G T O G R I P S W I T H B U D G E T M E T H O D O L O G I E S
• Don’t panic about the maths: not all project managers are born math
ematicians. If you don’t understand it, ask for help. Budgets at their most basic don’t rely on complex maths: you have a sum of money and you spend it over time, just like a household budget.
• Question why certain elements are required. If the answer is unsatisfact
ory, you can get away without doing that particular report or sum. If the answer is satisfactory, you will have a better understanding of what the finance team really needs.
• Remain true to the principles of the methodology, but feel free to adapt it to suit your needs. There is no need to do net present value calculations for a project that will be complete in three months.
• Team up with someone who has used the methodology for a project before and find out what worked well and where you will have problems.
They can offer useful insights into where the model breaks down.
Project Management in the Real World
The key elements to be aware of are:
• Do you know how much money you have overall?
• Do you know how much has already been spent?
• Do you know how much you plan to spend?
• Do you know how to address the balance if you plan to spend more than you have?
• Are your budget-setting and monitoring processes efficient?
• Can you explain all these points to your sponsor and answer their budget questions intelligently?
If you can answer yes to all those questions, then you have found a suitable way to manage your project budget.
G O L D E N R U L E S
Use the tools you are obliged to use in the most efficient way, even if it means bending the corporate rules.