Budgeting and Cost Control
Understanding financial management, including budgeting, forecasting, and cost control.
As an aspiring project manager, it’s important to develop a comprehensive understanding of financial management, including budgeting, forecasting, and cost control. These skills are essential for delivering successful projects and achieving long-term business objectives.
Series
This blog is from a series of the 12 things you MUST master, to be the BEST, Project Manager, I just wish someone wrote them out for me at the start of my career.
Budget and Cost Control
Effective budgeting and cost control require a solid understanding of financial principles, as well as the ability to develop accurate estimates, monitor costs, and adjust plans as needed. As a project manager, you’ll need to work closely with financial teams to develop budgets and allocate resources, while also monitoring expenses to ensure that costs stay within established limits.
To help you develop these critical skills, there are a number of resources that can provide guidance and insights into best practices in budgeting and cost control. Here are some books that represent the best practices in this area:
- “Project Management Accounting: Budgeting, Tracking, and Reporting Costs and Profitability” by Kevin R. Callahan and Gary S. Stetz
This book provides an in-depth overview of the key financial concepts and practices involved in project management accounting. It covers topics such as cost estimating, budgeting, forecasting, and financial reporting, with practical examples and case studies to illustrate key concepts.
- “Project Management for Profit: A Focused Guide for Planning, Controlling, and Delivering High-Quality Projects” by Joe Knight and Roger Thomas
This book provides a comprehensive guide to managing project budgets and controlling costs while delivering high-quality results. It covers topics such as cost estimation, budgeting, and cost control, as well as strategies for managing risk and optimizing project outcomes.
- “The Fast Forward MBA in Project Management” by Eric Verzuh
This book provides a comprehensive overview of project management best practices, including financial management, budgeting, and cost control. It covers topics such as project planning, risk management, and stakeholder engagement, with practical tips and real-world examples to help you develop effective project management skills.
Thought Leaders
Here are some of the best thinkers in the field of budgeting and cost control, along with their relevant works:
- Michael C. Thomsett – “The Little Black Book of Project Management” – This book covers a range of topics related to project management, including budgeting and cost control. It offers practical advice for managing project finances and keeping costs under control.
- Karen Berman and Joe Knight – “Financial Intelligence: A Manager’s Guide to Knowing What the Numbers Really Mean” – This book is designed to help managers understand financial data and use it to make better business decisions. It covers a range of topics related to financial management, including budgeting, forecasting, and cost control.
- Gary Cokins – “Activity-Based Cost Management: An Executive’s Guide” – This book offers a comprehensive overview of activity-based costing (ABC) and how it can be used to improve cost management. It provides practical guidance for implementing an ABC system and using it to make better business decisions.
- John Fraser, Betty Simkins, and Kristina Narvaez – “Implementing Enterprise Risk Management: From Methods to Applications” – This book provides a comprehensive overview of enterprise risk management (ERM), including budgeting and cost control. It covers a range of topics related to ERM, including risk assessment, risk response, and risk reporting.
- John A. Tracy – “How to Read a Financial Report: Wringing Vital Signs Out of the Numbers” – This book provides a comprehensive overview of financial statements, including balance sheets, income statements, and cash flow statements. It is an essential resource for anyone looking to understand financial reporting and analysis.
- “Cost Accounting Fundamentals: Essential Concepts and Examples” by Steven M. Bragg.
By studying the works of these experts, aspiring project managers can gain a deeper understanding of budgeting and cost control and learn best practices for managing project finances effectively.
Never Stop Learning
In addition to these resources, there are a number of research papers and articles from leading business schools that provide insights into best practices in financial management for project management. Here are some references to papers and research from top business schools:
- “Cost Management in Projects: The Linkage between Applied Cost Management Practices and Project Success” by Janice Thomas and Mark Mullaly. Published in the Journal of Cost Management in 2008.
- “Project Management Cost Estimation: A Methodological Approach” by António F. Coelho and José A. Faria. Published in the International Journal of Project Management in 2007.
- “The Impact of Cost Control on Project Performance: An Empirical Study” by Mahmoud Abou-Zeid and Moustafa A. M. Abdou. Published in the International Journal of Project Management in 2006.
By leveraging these resources and focusing on developing your financial management skills, you can build a strong foundation for success as a project manager. Remember, effective budgeting and cost control are essential for delivering successful projects and achieving long-term business objectives.
Separating Great from Good
The tempation in any project business, particularly where there is a financial controller of Finance Team, is to delegate the Project Finance control to the finance department.
This is a recipe for disaster, if not for poor results. The foundational role of a project manager is to ensure that their project meets is overall objectives, including financial objectives. Therefore, delegation of Financial Control of the Project to a non project resource is not only a poor decision, it goes against the objectives of the Project Managers role.
Great Project Managers
Great Project Managers Plan their Financial Control strategies from before the beginning of the Project. Yes, that means they have put in place the systems, processes, tools, methods, contract terms, procurement structures and processes, verification methods, delegations of authority etc, to ensure that the Team knows, how to control every aspect of Financial Control INSIDE the project team, to minimize the cost of the project.
Great Project Managers understand that the Finance team within a Project-oriented company are ‘Payers and Taxation compliance agents”.
This is a classic division of labor topic within the finance spectrum of activities.
Good Project Managers
Run the Finance of their projects, with strict control, however within the confines of the existing systems and tools, albeit, highly likely designed for a different purpose, are rudimentary and ‘best overall fit’ for the company, but not the project.
The ultimate result is that the project team take on the burdon of ‘not fit for purpose’ and the friction that comes along with this dynamic. aka they will get the outcome, just with alot of additional frustration and friction of poorly implemented systems and tools.
Not a Project Manager
Delegate financial responsibilities to a ‘department’ and just get on with ‘doing the work’
A simple, however provocative example, to make the point:
A subcontractor’s claim for $100,000 is received by the Finance department, and without interface with the project team the invoice is paid. Unbe-known to the Finance team, is that the invoice is the first invoice from the contractor and is a claim for a deposit.
The contract is clear, the Contractor is not entitled to a deposit, as the contract is written “the contractor may only claim for works that are fixed and firm in place on an earned value basis”.
When a Project manager is unclear on the integration of the processes and methods of how to control every aspect of the project, rather delegates control to others, without seeing the bigger picture, the company’s viability is at stake!
