The Project Notebook

Practical Budgeting for Project Managers – Conclusion

Budget Risk Assessment
Once you have created your draft budget, it should be subjected to the same review process as estimates discussed within the course materials. A line by line review should look for all the risks. Depending on your company and/or client policy, having a 15-25% contingency to manage risks is normal. You may want to consider an additional contingency for unplanned risks.

Most budgeting risk is centered around people. There may be project team members with unknown skill levels, insufficient staffing, outsourced work which cannot be managed as closely, or unique, specialized resources which are difficult to obtain at the right times. Another standard risk for the construction industry is the environment and weather. Each risk will require evaluation and a potential budget adjustment to ensure the best possible budget is formulated.

Longer term, multi-year projects need to consider inflation. Take the case of the interstate highway system which was constructed over a 35 year period. Inflation during the 60s and 70s was high and drove the project significantly over budget. Another example of a construction project impacted by inflation was the “Big Dig” in Boston. A factor for inflation might be added to the budget through the risk management process.

Budget Presentation
There is obviously no one single format for budgets. You should select categories according to the expense types and in alignment with your company’s financial reporting. Here an an example:

Bibliography
PMBOK® Guide, Fourth Edition; PMI 20081
Project Management: Engineering, Technology, and Implementation; Shtub, Bard, & Globerson; Prentice Hall 1994
Quantitative Costs in Project Management; Goodpasture; J. Ross Publishing 20042
Project Management Jumpstart; Heldman; Sybex 20052
Identifying & Managing Project Risk (2nd Edition); Kendrick; AMACOM 2009

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