High Level Project Budget

.
Debbie Madden: “To minimize the risk of having your next technical project go awry, stop estimating and start budgeting.”

Problem – High Level Project Budget

During the discovery phase of a project, you need to develop a high level budget to execute your project. However, you will probably have to develop your high level project budget before you have access to a full project team. Note that an estimate is a list of expected project expenses. A budget is an allocation of funds to the cost drivers that you believe will impact project execution.

Ideal State – High Level Project Budget

The ideal state at the end of the discovery phase of your project, is a credible, reliable, and accurate estimate of the high level project budget required to complete the project and deliver the agreed value.

Root Cause – High Level Project Budget

The root purpose for a high level project budget is to quantify the funding request for your project then enable you to track your ongoing project expenditures against the approved budget.

Context – High Level Project Budget

The context for a high level project budget is you have identified an underserved need and a solution that can add substantial value. However, you need funding to execute your project plan. To obtain funding, you may have to present your business case, or a pitch deck, to a funding committee. A critical component of your pitch deck, is a high level project budget that quantifies the cost to complete the project and deliver the expected value.

To develop a budget you must understand the target value, the requirements to realize that value, the solution, and the project release plan. You must then budget for each component of the solution. In addition, you must budget for overhead costs. Some of the overhead costs may be based on the size, or type, of project. Other overhead costs, such as project management, usually have a fixed run rate and therefore depend on the duration of the project.

A number of techniques are available for budget management. For example, cost management is the process of planning, budgeting, allocating, estimating, managing and controlling project costs. It enables you to forecast expenses and identify variances. Variance analysis compares actual expenses with the approved budget. Variance analysis therefore enables you to take proactive and reactive corrective actions that enable you to keep the project within the approved budget. However, given that your project’s cost is a key performance dimension in your project’s triple constraint, it can also be impacted by changes to schedule or value.

Solution – High Level Project Budget

.
Debbie Madden: “Your Agile Project Needs a Budget, Not an Estimate.”

The lean project startup process executes the planning required to create a pitch deck that includes a high level project budget. The problem solution fit identifies the strategic vision and the problem you plan to solve. The product market fit identifies the underserved need and the amount of the potential value you can capture. The future state architecture identifies the key components of the solution and other technical constraints. The value added roadmap and project release plan specify the timeline for value realization.

To develop a high level project budget, you need budgetary cost estimates for each component of your solution and also for overhead costs. To receive budgetary estimates, you will need to provide high level requirements to each of the estimating teams. One approach to achieve this is to decompose the project’s overall high level requirements into sub requirements for each team. You will then need to discuss and clarify those sub requirements with each team to prevent waste caused by over estimation or under estimation. For external vendors, you may need to work with your contracts group, legal team or vendor management organization to request a budgetary quote from each vendor.

You can use a number of different techniques to develop a high level budgetary estimate for your project team, such as historical comparisons with previous projects and expert judgement. You can also leverage lessons learned from previous projects to avoid omitting key costs. You should also include a risk premium of 10% to 20% to account for unexpected costs and because you have insufficient information to create a detailed estimate during the discovery phase of your project.

You will need to track, report and allocate costs in different ways for different stakeholders. Cost allocation entails identifying, aggregating, and assigning costs to specific cost drivers. For example, your cost accounting group will want to see costs allocated by general ledger accounts. Examples include contingent workers, travel, and licensing. Your accounting team may also want to see your costs separated by capital costs, that can be depreciated over time, and operating costs that should be expensed when they are incurred. This will facilitate financial decision making. In addition, your cost accounting team will explain the accounting rules that apply to your project.

Conversely, technical management may want to see costs allocated by operational cost drivers. For example, by project support team, or by specific components of the solution or by phase of the project. This will facilitate operational decision making. Moreover, analyzing your high level project budget from different perspectives can help identify missing, inaccurate or unrealistic cost components. It also enables you to aggregate component costs from different perspectives into a single high level project budget that is more credible, reliable, and accurate.

Your high level project budget is the bottom line request in your pitch deck for project funding. After your funding request is approved, you will engage your project team then develop a definitive project cost estimate. You should capture any variances between the budgetary cost estimate and the definitive cost estimate as lessons learned. Furthermore, during project execution, you will have to track and report variances between actual costs and the definitive project cost estimate and explain material variances to management and governance organizations.

Your Feedback

Enter your comments below so we can update this post and provide better solutions for the community. Also, if you have created any project management tools or templates that you would like to contribute for communal use then please send each one, with a brief description, to PMTools@LeanProjectPlaybook.com.

Business Opportunity

There is an opportunity to systematize the lean startup process for projects. Let us know if you would like to collaborate as a part of our community to transform these opportunities into an easy-to-use solution that will help assure project value and improve project failure rates. Alternatively, if your company is willing to contribute some of your time to help specify a solution to meet their specific needs then they will receive free licensing for an agreed period of time. Each project requires a project manager, an architect, a business analyst, a developer and a QA lead.

Simple Life Lesson

I see good personal financial management as setting – and keeping – a budget. John Rampton

A budget is telling your money where to go instead of wondering where it went.  Dave Ramsey

Money is a terrible master but an excellent servant. P.T. Barnum

Beware of little expenses: a small leak can sink a great ship. Benjamin Franklin

Never call an accountant a credit to his profession; a good accountant is a debit to his profession. Charles J.C. Lyall

Innovation Incubator

• Are you tired of using the same old Project Management tools and techniques and getting the same unacceptable results?
• Have you developed a project management tool or technique that has improved the performance of your projects?
• Is your organization interested in trialing innovative project management tools and techniques?

Contact us to list a project management tool that you have developed or to trial of any of the following innovations:

6SigmaPM – A proactive project health check. It measures your project’s vital signs then recommends corrective actions to prevent a negative trend becoming an actual problem. The benefit is predictable project performance.

JoinMyOrder – A group purchasing system. You submit a purchase order, other like minded customers also make a commitment to buy, then suppliers compete for the high volume purchase order in a reverse auction. You receive the price, terms and conditions normally available only to much larger organizations.

Crowd Bootstrap – A startup ecosystem in an App that offers innovation as a service. You sponsor a startup accelerator and determine its industry focus. The accelerator invests business services from independent contractors into selected startups to help accelerate their progress. You get access to the startup’s team, knowledge, products and services. You receive the benefits of an accelerator without the usual costs. It is “innovation-as-a-service” in an App.