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 Quick Quiz
By Barbee Davis, MA, PHR, PMP
Although I figure my cost baseline carefully, I’m still consistently overbudget. What should I do to try to get it right?
A. Install automated software so your math is more accurate.
B. Don’t worry as long as you are -25 percent or +25 percent from your goal.
C. Ask the accounting department for weekly reports on finance code activities.
D. Include more than the cost for resources in your cost budget.
Answer: D. Include more than the cost for resources in your cost budget.
Often project managers use the amount calculated for the project’s people, materials, facilities and equipment as the cost budget. While this is an important beginning, don’t stop here.
- Contingency Reserves. Overall project costs are only estimates based on the time project teams will spend on activities and the amounts you will be charged by vendors or charged back by your organization. Actual charges to the project budget will vary according to the accuracy of your estimates. Calculate an additional percentage of the project budget to set aside to cover these differences.
Contingency reserves are placed in the project schedule or when major milestones converge. They have zero duration, but allow expansion of the project budget within a predefined range at the discretion of the project manager.
- Risk Costs. Consider project risks early and decide which ones you will address. The costs associated with rearranging the schedule, changing vendors, purchasing insurance, assigning more experienced and expensive team members, or other risk responses should be added to the cost budget before setting the cost baseline.
- Make-Buy Decisions. Analyze to see if you should create needed items in-house, or if you will purchase them. Consider maintenance, long-term user support, warranty considerations, storage issues and if this product or service will be needed by the organization after your project terminates. Don’t forget the cost of the vendor selection process if you decide to buy. Include these make or buy costs in your cost budget prior to finalizing the cost baseline.
- Team Training. Scan potential project team skill sets to see if they meet the demands of this undertaking. If not, the cost of primary team training must go into the project cost budget.
- Quality Standards. Assess quality requirements set out by the internal or external customers. Can you meet them with your current staff and technical set-up? Any additional charges needed to insure compliance or prevent non-compliance to customer quality expectations go into the cost budget.
- Management Reserves. Advise management that an extra cash or credit amount should be encumbered in case the project encounters risks that cannot be anticipated. These funds can only be accessed with the approval of management or a change control board. Show the management reserves in the project scope budget, but not in the project cost budget.
Make sure you include these hidden costs in your project budget. It can help you shine, as more of your projects come in on budget or at least within admirable variances.
 Barbee Davis, MA, PHR, PMP, is a reviewer for the global PMI Registered Education Provider Review Team. She owns Davis Consulting and is a published author, speaker, writer of training materials and an innovator in presentation skill workshops for corporate trainers. She holds a Black Belt in MS Project and teaches at the university level. Ms. Davis encourages your questions or comments.
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