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Five Ways to Ensure the IT Project Budget is Balanced

Updated: Jul 20, 2023

The IT Project Budget details how much is estimated to be spent per fiscal month and overall for the life of the IT project. When the project manager closely monitors the IT Project Budget, costs and estimations are controlled and the likelihood of the budget being out of balance is reduced.

Why is it Important to Balance the IT Project Budget?

Firstly, if mismanaged, the overall Project Program Budget is affected. This program represents all the projects scheduled to execute in this fiscal year that will realize the organization's strategic goals. This means that if many projects are in progress with budgets that require extra funding, this funding will come from the Project Program-Budget. The effect of this is that other pending projects may not be able to execute in the current fiscal year.

For example, if there is a project with a $100,000 shortage, the project manager will need to file a change request to attain this additional $100,000 from the Project Program-Budget. This $100,000 could've been used to fund other projects that were scheduled to execute later in the fiscal year. In turn, this action could affect the organization's strategy as certain projects expected to execute are now in jeopardy of being put on hold.

Second, if the project budget is mismanaged, the Project Management Office (PMO) or senior leadership may make the difficult decision of canceling the project or placing it on hold. Again, the organization will not realize the full potential of its corporate strategy. Further, if it can be proven that the project manager mismanaged the IT Project Budget, the project manager will get notoriety within the organization and their budget management and estimation skills will come into serious question.

The 5 Ways to Manage the IT Project Budget

  1. Ensure Internal Labor Costs are trending properly. During the fiscal month, resources will take vacation or sick days which may cause the Internal Labor estimation to be higher than the actual cost. The project manager can stay ahead of this by leveraging a vacation tracker so that monthly estimates are close to the actual cost. Also, resources may book too many hours for the project causing the Internal Labor estimation to be less than the actual cost for that fiscal month. The project manager can find out from this resource why they are working so many hours and what is the cause.

  2. Vendor Payables should not be recorded until the work is done. As an example, if a software development vendor does not complete the work on time the project manager should not record that payable into the financial dashboard for that month. The project manager should only enter payables against the IT Project Budget when the vendor completes all work related to that milestone. Only then, can the associated cost for that milestone be entered as payable. Once that payable is approved by the PMO or IT Finance, a check will be cut for the vendor.

  3. Reallocate unused funds to future months. If the cost of certain accounts is under budget, the unused funds should be moved to a future fiscal month so that those funds are not lost once the fiscal month ends. For example, if the estimation for Contract Service in fiscal July was $15,000 and the actual cost was $12,500, the unused $2,500 should be moved to a future fiscal month for the Contract Service account. If the project manager is absolutely certain that this extra $2,500 will not be needed for the rest of the project, they can submit a change request to take this money out of the project and give it back to the program to fund other projects.

  4. Document Financial Risks and have a plan to deal with them. Similar to project risks, financial risks should be logged on the risk register with a mitigation plan to deal with them. For example, if internal labor costs will be variable the project manager should have a mitigation plan in place to attain everyone's vacation schedule and note when resources are out sick. Another example is when software vendors are late with their deliverables. A proactive plan will include having mitigation steps once the vendor is showing signs that they will be late with their deliverable.

  5. Check the Financial Dashboards as the PMO or IT Finance can make mistakes. This seems very unlikely but something that should be done anyway to ensure there is no confusion. I personally have experience where I've seen anomalies on my financial dashboards and, when I communicated with IT Finance or the PMO, they admitted that they had entered erroneous information on my project's financial dashboard. Even if others make mistakes, the project manager is still accountable for the project budget to remain in balance.

When managing the IT Project Budget, the project manager must be proactive when noticing variances and reporting these to the PMO or IT Finance. The project manager is accountable to manage the IT Project Budget and warn if any problems will surface.

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