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.

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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.

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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.

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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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