Operational Excellence

Worst Mistakes You Can Make When Planning a Project Budget

by Penny Kooy, December 7, 2016

The Worst Mistakes You Can Make When Planning Your Project Budget.jpg

The purpose of planning a project budget is to make certain that you’re prepared for all possible circumstances. Running out of money is not an option, any more than delivering an incomplete project is. If you do find yourself staring at a budget overrun, then most likely things started slipping well before you found out and could have been prevented.

There are a handful of common mistakes that can be made when planning the project budget. Commit one, or more, and you can expect to be getting bad news about a budget overrun. Luckily, as common as they are, it’s not hard to avoid these mistakes. As long as you’re cognizant of the situation ahead of time and make sure that you’ve planned the project budget properly, you’ll have nothing to worry about. Following are five such mistakes that you should watch out for:

1. Unrealistic Expectations of Availability

First up is the idea that you can book 100 percent of your team’s time. That’s a fantasy, and you’ll be hurting quite badly if you expect that to be the case. Between breaks, unscheduled sick or personal leave, and company-wide sessions, it’s going to be impossible to have 100 percent staff utilization. Even 90 percent is seldomly seen.

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Instead, plan for 80 percent availability. Normal utilization amounts are in the range of 80 percent to 85 percent. If you estimate low, you’ll never be burned if everything hits at once. You can always adjust the expectation later on if need be, but it’s a lot easier to reduce expected hours than to conjure them out of thin air if you discover you were overestimating resource availability.

2. Starting with an Incomplete Team

Nothing torpedoes a project budget more quickly than starting behind expectations. If your team is incomplete, but you begin work anyway, you can expect that later on you’ll need to play catch-up. This might come in the form of additional staff being added for overtime work or freelance contractors who cost a premium because they’re not part of your full-time staff.

When you plan your project budget, consider that you’re going to be penalized if you cannot put the proper team together. Double-check that the team size is going to be adequate to accomplish the goals, and if not, then you have hard facts to present on why your budget and staff needs are going to require more consideration from your superiors.

3. Not Factoring in Tax

Here is an easy mistake to make. Let’s say you work with clients that are not required to pay taxes, so you forget to factor tax in with the clients that are on the hook for the withholding. That can result in a bit of a discrepancy between budgeted and actual revenue.

While tax normally will not make or break your project budget, it can significantly eat into the profits. If you want to avoid a bad surprise, always estimate the budget with the tax included. Worst-case scenario: You’ll come out a little further ahead than you were thinking would be the case. And then you’ll never be tripped up by forgetting to factor in the withholding for your taxable clients.

4. Forgetting About Holidays and Vacation

Similar to both taxes and resource availability, scheduled time off can be a project budget landmine if you do not remember them when you’re setting up the schedule. Your resource utilization will go from around 80 percent (not 100 percent, remember!) to 0 percent during any scheduled holiday. And when members of your team take vacation time, their absence comes into play when calculating resource availability.

Be sure you’re thoroughly reviewing any dates and times that would have an impact on staff availability. Both federal and state holidays should be counted, as well as scheduled vacation, office closures, and school closures. School closures are a tricky one, in that you might find the parents on your team taking unscheduled time off if their kids are going to be home all day; however, you may also find that they’ve made prior arrangements with scheduling sitters or their own paid time off. Even so, be prepared for lower resource availability those days just in case.

5. Having an Incomplete Scope Definition

Scope changes are part of the job. They add costs to the project, but your experience should tell you that a little adjustment to scope is expected when planning the project budget. But if you have an incomplete picture of the scope before the project begins, that’s asking for trouble.

Remember Murphy’s Law, where anything that can go wrong will go wrong? If you don’t have a good view of the scope ahead of time, you could spend time and resources taking the project in the opposite direction from what the client wants. If you fill in the blanks on your own, you’re also inviting scope creep from the client. Because you never clarified ahead of time, the scope creep is your fault, instead of the client’s indecisiveness. This means that there’s no recourse to put the project budget back on track if it happens.

Bottom line is, make sure you have a full idea of what the client wants before beginning the project. This allows you to account for anything that might be required beforehand so that you’re not missing resources when it comes time to deliver.

While these project budget mistakes may sound nasty, they’re not hard to avoid if you plan well. As you know, preparation is absolutely crucial in all aspects of project management. And any area that you don’t prepare well for will end up costing you more in the long run. Keep these mistakes in mind the next time you’re planning a project budget.

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