How to set realistic priorities for it budget planning it-toolkits

2/28/2016 4 Ways to Manage Your IT Budget - IT-Toolkits.org

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4 Ways to Manage Your IT Budget - IT-Toolkits.org

1. Continually forecast the budget. A project run without frequent budget management and

reforecasting will likely be headed for failure. Why? Because frequent budget oversight prevents the

budget from getting too far out of hand. A 10 percent budget overrun is far easier to correct than a 50

percent overrun. Your chances of keeping the project on track with frequent review of the budget plan

is far greater than if you forecast it once and forget about it.

2. Regularly forecast resource usage. Just as the budget needs to be constantly revisited to keep

it on track, you need to do the same for resource usage, since the people working on a project

contribute to its cost. Project managers should review the number of people currently working on a

project and the project’s future resource needs on a weekly basis . Doing so will ensure that you’re

fully utilizing the resources you have and that you have the right resources ready for the rest of the

project. Regularly revisiting the resource forecast will help keep your project budget on track.

3. Keep the team informed. Always keep the project team informed of the project budget forecast.

An informed team is an empowered team that takes ownership of the project. By keeping the team

informed of the budget status, they will be more likely to watch their project charges and far less likely

to charge extra ‘gray area’ hours to your project (those are the hours that they know they worked by

aren’t sure what they were working on.)

4. Manage scope meticulously. Scope creep is one of the leading causes of project overruns. As

unplanned work finds its way into your project, billable hours mount and the project budget can get

out of control. Project managers must carefully manage scope by creating change orders for work

that isn’t covered by the project’s initial requirements. Change orders authorize additional funding for

the project to cover the cost of extra work, and thus keep the project to its new budget.

The project budget must be a living part of projects—something project managers review with their

teams and their stakeholders on a regular basis. Project managers who carefully watch budgets

throughout the lives of their projects will keep stakeholders and management happy and thus

experience greater project and career success.

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Within the project management context, begins with estimating. As a practical matter, there are three

(3) primary uses for project “cost estimating”:

1. To identify and quantify potential (and probable) project “cost factors” (i.e. what will we have to

spend money on?).

2. To estimate related cost values and create an appropriate, realistic budget (i.e. how and when

funding will be spent).

3. To track estimated costs (as they become actual expenditures) and monitor any and all resulting

variances.

Cost Control is Part of “Managed Change”

Since project cost estimates are just that – estimates, and it is unlikely that related project budget,

resulting from these estimates, can be etched in stone. Projects have a pulse, and the circumstances

and conditions under which projects occur can, and do change, impacting costs and expenses. To

deal with this uncertainty, project managers often apply a “contingency factor” when preparing a

project budget. This contingency factor normally consists of a 5 – 10% boost of anticipated project

expenses in order to uncover inexperience, as well as the “unknown” or the “unexpected”.

Contingency or “Not to” Contingency. That is the question…..

Depending on the degree of internal experience with a given type of project, contingency reserves

may or may not be necessary. In addition, there is a philosophy that says that contingency reserves

are dangerous, leading to unwarranted project spending.



Budget Contingency Pros: The extra funds are in hand when needed, without seeking further

approval. Considering that project circumstances can change so frequently, contingencies readily

acknowledge this fact, facilitating project completion.

Budget Contingency Cons: Contingency reserves make it easier to gloss over project costs,

making budgets less precise. Contingency reserves encourage cost overruns, by granting easy

access to additional funding without a thorough consideration of available alternatives.

To-Do List: (4) Key Steps to “Trackable Costs”

The following listing lays out the four (4) primary steps for project cost estimating and tracking:

Step #1 Make the continency decision.

Contingency budget decisions should be made at the start of the budget estimating process. Will you

need a contingency budget, and if so, in what amount, and how will it be used?

Step #2 Identify the cost factors.

While cost factors will vary based on project characteristics and business circumstances, in general,

project costs can be viewed from four basic perspectives – labor, capital investments, overhead (to

maintain the project environment) and project specific (costs to plan, manage and execute the

project):

Step #3 Establish cost factor values.

Project budgets quantify the expected costs associated with a project, and these budgets must be

based on a reasonable, realistic estimate of likely project costs and expenses. The estimation of

project costs is part science, and part intuition, common sense and experience.

In fact, past projects can be the most valuable indicator of current project expenses. As project costs

are estimated, the following factors should be considered:

The specific cost factors involved depending on the needs of the project.

The costs of similar projects in the past.

The opinions and feedback of project participants. When estimating costs, it is important to get a

broad spectrum of information, experience and opinion.

Step #4 Track expenditures and variances.

Once the project budget is created and approved, and the project is underway, costs and expenses

must be tracked to ensure that budget utilization is as planned and expected (are you spending what

you expected to spend based on how the project is proceeding?).

Variances Happen. That’s not good or bad in and of itself. If variances exist (and they will), you

must determine whether the variance is “positive” or “negative”, and what it all means. Then you

can “react” and act accordingly.



A positive variance indicates that you are under budget, but appearances to the contrary

notwithstanding, this are not necessarily a good thing. When project expenses are less than

expected, this may be a sign that the project is not proceeding according to plan, and may be behind

schedule. In addition, a positive variance may be a sign of ineffective estimating. On the other hand,

this under budget condition may be the result of legitimate changes, discounts, or cost saving

measures.

A negative variance indicates that the project is over budget. Depending upon whether the negative

variance is at a monthly or overall project level, this variance may be the result of serious project

problems, such as excessive changes, schedule delays or ineffective budgeting. If the negative

variance is on a monthly level, but the overall project is on track, there may not be an immediate

cause for concern.

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Step 1: Set Budget Goals and Strategies

Once you are aware of your budgeting “realities”, you can begin the process of identifying related

priorities, which will shape and refine actual budget results.

Will it be possible to maintain the budget and still provide the necessary services and projects?

If not, what items in the budget can be reduced to compensate?

If budget cuts are in order, how will essential services and projects still be provided?

How will difficult budget decisions be made and communicated?

How will you deal with staff disappointments and end-user complaints?



Step 2: Identify Budget Components

How will IT funding be spent considering staffing, capital investments, supplies, overhead, facilities,

travel and related expenditures?

Step 3: Identify Service Priorities

What are the identified priorities for the IT service portfolio and what are the related operational

costs to deliver these services?

Step 4: Identify Business Priorities:

In order to prepare a realistic IT budget, you must have a solid grasp on business priorities.Based on

business type, current conditions and circumstances, likely business priorities will likely include any or

all of the following:

To cut IT (acquisition and/or operational) costs and related expenditures.

To improve workplace and IT management productivity.

To deliver new or improved technologies.

To eliminate technology (system and/or operational) problems.

To improve IT service delivery and related customer service satisfaction.

To improve performance of in-place technology systems and solutions.

Step 5: Align IT Priorities with Business Priorities:

The final step in this budget planning process is to align IT priorities with business priorities, aligning

technology spending, IT services and related projects with established business goals (all as part of

the IT management vision). As you begin this alignment process, you first need to look at your budget

as a whole in terms of overall goals and management directives.

This is the time to expand the planning scope and make tough decisions.

Do you need to maintain, cut or increase the current budget from prior budget levels?

If you need to maintain the budget levels from your prior budget, will you need to eliminate or defer

any projects or planned initiatives that would require additional spending?

If you need to cut (reduce) budget levels from your prior budget, how will those cuts be made?

Across the board (equally to all budget items)? Apportioned to specific budget items, leaving

others intact? Apportioned to specific budget items, allowing for necessary increases in some

areas, with corresponding cuts in others?

If you need to request budget increases, can those increases be justified on the basis of IT and

business priorities?

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How to set realistic priorities for it budget planning it-toolkits