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How to Handle Project Budget Cuts

August 3, 2010 | Author: PM Hut | Filed under: Cost Management, Project Management Guides How to Handle Project Budget Cuts By Michael Stanleigh Dear Project Coach: My project sponsor just cut 30% of the funds and I am really confused and short of ideas at the moment. What is the best practice and how am I to resolve this issue? This my first project with this sponsor and I dont want to lose face, truth or the project in any way. Thanks for your time, Signed: Challenged Dear Challenged: I know that this is a very difficult situation, especially since this is your first project. However, dont despair. It is very common though I know it is very unsettling. When a Sponsor cuts project funding they usually are unaware of the impact this budget reduction will have on the project. Rather, they believe the project manager will figure it out. We all know this isnt as easy as it seems. The first and most important thing for you to do is research. Identify the impact this 30% funding cut will have on your project? For example:

Will it make it impossible for you to complete the project on time? Will you have to reduce the number of resources working on the project? How will this impact the project? Will it reduce the likelihood that you will be able to meet your customer and other stakeholder requirements? If so, how will it impact them?

The second thing for you to do is to develop possible solutions. For example:

You can extend the end of the project since you will have fewer resources. You can change what you are able to provide to the customers and other stakeholders to meet their requirements. Or, you can deliver some of their requirements through Stage 1 of this project and defer other requirements to a Stage 2 of this project. You can reduce the number of project deliverables you are able to complete as identified in your project Scope Statement.

Im certain there will be more areas of impact on the project that you can identify. As well, there will be more possible solutions. The next stage is to complete a Change Request. It is important that you document the impacts that this 30% cost reduction will have on the project and follow each impact with a recommended solution. Your goal is to educate your sponsor. You want them to understand that you can manage with a 30% cost reduction but you need them to understand the impact that this will have on the project and what you recommend as possible solutions to continue to successfully manage this project. In most cases, the Sponsor suddenly becomes aware of the true impact of this significant change and gives more consideration to your suggested alternatives. They will appreciate your concern for keeping the project on track. Please keep me updated on your sponsor relationship and do let me know if you need any more help managing them. Signed: The Project Coach Michael Stanleigh is the President and CEO of Business Improvement Architects. He works with executives and senior managers around the world to help them improve operational effectiveness through strategic planning, leadership development, project management and quality management. Michael has been instrumental in helping his clients reduce waste and increase efficiencies and profits with his clear processes and quality approach. For more information about this article, please contact bia(TM) at info@bia.ca. Share this article:


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As the Project Coach pointed out you can cut scope or extend the schedule (sometimes). What usually happens is that quality is cut. This is usually a very bad idea. When you tell your resources to get the same thing done with less effort (effort = money), they have to compromise something. The end result is a buggy, unreliable, or crappy looking product. Cut scope of the project, do not cut quality. Do a Change Request as Project Coach advises too, so everyone will know the impact.

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7 Tips for Novice Project Managers

March 3, 2014 | Author: PM Hut | Filed under: Project Management Best Practices 7 Tips for Novice Project Managers By Michelle Symonds If youre new to project management or are interested into getting into managing projects as a career, you might be wondering whether youre suitable for the role. As well as a sense of tough resilience and excellent organisational skills, youre going to nee d to be able to listen and learn. And what better place to start than right here with our top 7 tips for novice project managers. 1. Prepare for a steep learning curve If you already work in a project environment, you might have been exposed to some project management concepts and terminology already. If not, then prepare yourself for a steep learning curve. Youll soon come to realise t hat project management has a language all of its own and a wealth of facets to understand and take on board if you are going to be a great project manager. 2. If you arent sure, ask Nobody is going to expect you to know everything from the word go. In fact, they will probably be expecting you to ask lots of questions in your early days as a project manager as you start to get your head around things. Asking is fine, so dont be afraid to approach colleagues and employers for advice. Much rather this than have someone going into a project head on with only half an idea of what they are doing. 3. Find a good mentor Guidance from seasoned project managers is crucial in these early days of your career. Find someone in the organisation to help you along the way, as youll learn far more from an experienced professional that youll ever learn from a textbook. 4. Follow the defined processes within your organization The majority of businesses will have a certain way of doing things, known as processes. These are basically repeatable actions that keep the day to day operation of the business running smoothly. Well organized or more established businesses will normally have these processes written down and documented for you to learn, although smaller and younger companies may still rely on word of mouth. 5. Learn both how and when to communicate effectively Communication is at the heart of any project managers job, and that includes communications within the team, upward to senior management, outward to stakeholders and in between departments. This means a good project manager must be adept at targeting and honing their communication skills to suit a range of audiences. 6. Look after your team

Projects will only succeed thanks to the combined efforts of all your team working together. For this reason it is crucial that you do everything you can to facilitate effective and efficient working within the team, and that you support team members in their development and learning pathways. 7. Get certified Getting certified is an important step in project management, and will ultimately lead to you earning more and getting better jobs. Most certification routes require varying degrees of experience prior to getting the Certification, so choose your pathway early on and make sure you document anything you are likely to need to claim for your certification so you can easily prove your experience, especially for some of the APMP qualifications that require evidence of Continuing Professional Development (CPD) such as the APM RPP Registered Project Professional. Michelle Symonds is a qualified PRINCE2 Project Manager and believes that the right project management training can transform a good project manager into a great project manager and is essential for a successful outcome to any project. There is a wide range of formal and informal training courses now available that include online learning and podcasts as well as more traditional classroom courses from organizations such as Parallel Project Training. Share this article:

2. Project Budget Cuts

NEW YEARS RESOLTUION Budgets Cuts So it is January the 5th and you are back to work after the long Christmas break. You deserved the break as you were working long hours in December you are now well rested, a little heavier, but feeling good. You have a new vigour and you are ready to once again manage this complex project with renewed energy, and guess what your budget has been cut! In these harsh economic times all budgets have been slashed. You have no say in the matter but you are still expected to deliver the same quality and on time. So how do you do it? Do you give up and mope like the rest of crew or do you grasp this opportunity with both hands. It is only the best of us that reign in a recession. So how do you do it? How do you deliver what is expected without compromising quality? How do you motivate staff with no funds for perks? How do you tell senior managers bad news? How do you manage expectations? Well realistically it cannot be done. If you change one of the fundamentals of the project, it affects all others. The 4 fundamentals of any project are time (schedule or delivery date), money, effort (resources) and quality, if you change one - you change them all. By cutting your budget you may have to rely on more internal resources which may increase the effort and affect the time line. You may have to dismiss contractors, delay milestones and cut back on suppliers. All the nice to have things that you wanted to use to launch your project will not be available. So get thinking. You need to replan. You need evidence. REVIEW RETHINK REPLAN REPRESENT 1. Review the goal. Has it changed? Is it now less urgent? Is the project required? If the budget can be cut just like that is it really still important - or just something that can to be done differently? If the goal of the project remains the same and if you are not compromising quality you may wish to curtail all the add-ons. The nice to have but not really necessary benefits. Review all the benefits. 2. Rethink the budget. How can it been done cheaper? Can supplies be bought locally? Can you reduce transport costs, overtime, expenses? 3. Replan. Replan the milestones and schedule. Do a realistic plan that shows the effects of no budget. You are complying evidence no use in hiding the truth. 4. Represent the Evidence. Represent the new Project Plan to all your team. Get their buy in. Sell it to them. Your team may be the only team in the company who have taken on the budget cuts with gusto. Represent to all your Stakeholders, explaining that must be done in order to achieve the goal and when the project will be delivered. Make sure you present in front of your enthusiastic team

Managing expectations is one of the fundamental principles of good project management. Let People4projects show you how to manage expectations and deal with budget cuts

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3 http://www.vertabase.com/when-the-project-budget-must-be-cut/

When the Project Budget Must be Cut

Home / 1. Project Management / When the Project Budget Must be Cut

April 25, 2013 11:23 am Vertabase Team Comments Off

What if you found out part of the way through a technical implementation that the project funding was being cut by 15%? Lets say youre 6 months into a year long project and youre way past the planning phasesthe heart of the work is being done on the end solution right now and you just got this bit of news dropped in your lap. For an internal project it could be coming from your senior management or the internal business unit sponsoring the project and for an external project it would likely be coming from the customer project sponsor. How do you handle this? How do you react? Short of throwing your hands up in the air and saying I quit, what do you dowhere do you start? This is a painful one to live through, indeed. Ive been subjected to sudden replacement (or loss with no replacement) of key personnel, changes in priorities of tasks by project sponsors based on business process requirements and of course the usual changes in requirements sometimes very major but Ive not run into a decent size budget cut scenario, like thisthough I find it intriguing to consider. As you read through my thoughts on this, think about your own experienceshow did you handle something like this or if youve never experienced it how do you think youd react and what actions might you take? Here are my thoughts: First order of business assess the current project budget Are there places where the budget may have been inflated? Can a few tasks be removed from whats left of the project to help make up that 15%? Can a key deliverable be removed? Can a report be eliminated now and implemented after deployment if it is truly deemed necessary later on? Scour the requirements and look for things that arent absolutely necessary that can possibly be removed to save portions of that 15%. Dont try to go for all of it hereservice may suffer.

Next, assess the current project team Are you keeping resources on the project that may not be needed? Resources tend to charge to the project even if they arent doing much most organizations want to see as close to 100% utilization as possible and if a resource has a project on their plate, they are likely to charge at least some time to it each week. Go lean manage the budget with an iron fist and see to it that no time is charged to the project that isnt absolutely necessary. Look at any vendors being used on the project for opportunities to cut costs If youre using any 3rd party vendors on the project, can you negotiate some better rates on their services or go with a different vendor at this late stage in order to save some meaningful amount toward that 15%? Of course, its critical that you dont do something drastic that could cause some failure point on the project so thats a key decision point for the project manager. But often times youll find that vendors would rather cut a price than be completely cut out of the picture as a service provider. Negotiateits definitely worth a try. Consider changes to deployment related activities Are there things tasks, activities, deliverables that youve priced into the engagement near deployment or after deployment that can be eliminated? Its not wise, but you can cut the lessons learned session from the project. Circle back for free with a one on one phone call with sponsor on a lessons learne d quick callits still better than nothing. Or possibly some documentation deliverables could be eliminated (not wise, but maybe a drastic necessary move) or given away for free. Summary The key concept may end up being this: if the cut is coming from the customer and they are a valued customer, you may need to just eat that 15% and do that dollar amount of work for free. Is retaining this customers business or getting a good referral from them of utmost importance? If the answer is a definite yes, then you may have no other choice. If the project is internal and the order of funding reduction is coming from your senior management, then it may be a concerning revelation about your companys financial situation. You still cant do anything about it but decrease services on the project cutting staff just means someone else has to work harder and that effort will still hit the bottom line of the projectso no real help there. Its not likely youll find one thing to cut to save the 15%. It will probably need to be minor reductions in a number of different areas on the project. by Lori

4 http://www.projecttimes.com/articles/my-budget-is-being-cut-oh-my.html

My Budget is Being Cut Oh My!

Written by Denise DeCarlo


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All too often our project budgets are being slashed, especially in the midst of our current economic crisis. This article will provide some insights and ideas on how to best manage this not-so-fun situation. Here are 13 succinct steps to help you get things back in order after your cost target changes.

1)

DONT PANIC! If you panic; so will your team.

2)

Understand why the project is being cut. If it is due to overall corporate or department wide budget cuts vs.

something specific to your project delivery --- you will need to take a different approach to addressing the challenge. If the budget cut is related to corporate/departmental wide changes the best approach to take is to show the value your project brings to the organization. If the cuts are due to project delivery issues you still need to show the value your project brings to the business and youll need to demonstrate how youre going to get the project back on track. The key here is to demonstrate to management that you have the capabilities to deliver the project successfully. 3) Go back to the basics. What is your project about; what value-add does it bring to the business? Remind

the senior management team (and your core team) about the great reasons this project came about. This is a perfect time to dust off the original Project Charter document and any other documentation you may have that contains relevant information regarding the business justification of the project. (Do this regardless of the reason for the budget cuts.) If you did not create a Project Charter when the project commenced, then create one now. Look at the original Business Case which should have documented the reason the project was initiated and the value it should bring to the business. If a business case was never created then talk to management team members that were around when the project was kicked off so you can document this information. By showing the business value (maybe savings to the business, cost avoidance, or revenue generation) its possible your project budget wont be reduced. 4) Find out what the business CAN afford. Instead of randomly cutting your budget to see what they will

approve find out what is affordable and why. 5) Communicate, communicate, communicate. During times like this the rumors will be fast and furious. Tell

your stakeholders what is going on, why, and when decisions are expected. (You might even solicit their help to restore or retain some of the project budget!) Keep things as normal as possible until the final decisions are made.

6)

Work closely with your project sponsor so they can assist you through this process. Always ensure you are

aligned with one another. Your sponsor can work with you to define the best approach to address strategic and political needs. 7) Request a project review. This may seem like an odd thing to do at a time like this but a project review

performed by an outside consultant or an internal quality assurance person can demonstrate the things your project is doing well and may help justify some of your project scope/budget. At the very least the project review will show weak areas that could be improved upon going forward. If the project budget was reduced due to project delivery issues, the project review is essential. Youll need to get the project back on track and begin delivering quality products to demonstrate to management you can meet their expectations. 8) Review the requirements and evaluate if youve done a good job prioritizing the must do requirements vs.

non-essential requirements. If a business unit has to choose between the bare minimum and what they really want they will likely go for the bare minimum so they have something that is better than what they have today. If requirements have not been prioritized you need to do this now. At the very least prioritize requirements based on: a. b. c. d. 9) Mandates for government/regulatory reasons Essential business operations Improved business operations for more than x number of personnel Provides value to a limited group (for example 10 or less) of personnel

Address the budget challenge by: a. b. c. d. Knowing the new budget target Working closely with a variety of key stakeholders to ensure the information you have is accurate Keeping all requirements (if possible) that have direct impact and support the overall purpose of the project Finding ways to streamline project processes to produce deliverables more efficiently. Work with the project team to best understand what is working well (ie: things not to change) and identify opportunities for improvements e. f. g. Removing lower priority requirements and record business impacts by not implementing these requirements. Include money spent to-date (if any) to demonstrate sunk costs Hiring less expensive resources (if the risk remains manageable) Removing medium priority requirements that are expensive to implement

10) Present the revised scope/budget to the senior management team along with new and revised issues and risks due to the proposed changes. 11) As quickly as possible, communicate decisions made to your core team and explain the direct impact to their day-to-day activities. 12) Swiftly change the project documentation based on newly approved scope the sooner you do this, the better. 13) Be glad you still have a project to manage and deliver it to the best of your capabilities (with a smile on your face!) Having your budget cut is never fun --- however you can make the best of a not-so-good situation. Rally the team together and remind everyone of the value the project brings to the business based on the revised scope. Dont dwell on the past and move forward by delivering the best product you can, given th e resources allocated to your project.

Don't forget to leave comments below.

Denise DeCarlo is a Founder and Principal of MINDAVATION, a company providing project management training, consulting, keynotes & coaching services throughout North America, Australia, the Middle East and Europe.

You will agree with me that a large percentage of total project costs are often labour costs, so project managers must develop and track estimates for labour. I may have felt bad then but the company survived it. After a few years i am part of the success story of the same establishment.

According to Nagarajan (2012), the following are the components of capital cost of a project; 1. Land 2. Land Development 3. Buildings 4. Plant and machinery 5. Electricals 6. Transport and erection charges 7. Know-how/consultancy fees 8. Miscellaneous assets 9. Preliminary preoperative expenses 10. Provision for contingencies 11. Margin money for working capital These are the individual components that make up the project cost. As a project manager when faced with a difficult situation as above we will look at the costs above and decide where if possible cut expenses so that the project will not fail.

As

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