First, an unfortunate reality: It’s common for projects to go over budget and past deadlines. Sometimes, despite our best efforts.
No matter what field you work on, you face similar challenges when it comes to managing time and budgets.
Construction projects can go over budget when estimates are overly optimistic or underestimated from the beginning. Marketing agencies can go over budget when there isn’t alignment on expectations before the project starts. Freelancers and consultants can go over budget on projects when senior leadership isn’t involved until the very end. Finally, developers and software engineers can go over budget when there’s a delay or change in the timeline.
If you find this happening repeatedly, it might be time to get to the root cause.
Why the control and budgeting of costs is important for any project
Project budgeting and controlling costs is crucial because it’s how your business stays profitable and growing. As more projects go over budget, it becomes more difficult to pay staff and invest back into your business with equipment, software, or training. To make matters worse, client relationships can go downhill when deadlines are missed, estimates are wildly off, and trust is threatened.
Even when the reason for the delay comes from the client, there’s little you can do to offset the time and cost waste that comes from going over budget.
Consistently going over budget can also illuminate a larger issue, which could be anything such as not raising prices in over 10 years, or client-vendor fit. Better budget tracking will show you exactly where things went wrong, and how you can fix them in the future.
That’s why it’s so important (so, so important) to take steps early on in a project to protect your team and your business from projects getting derailed.
How can you never go over budget again? Let’s get started.
What is budget management in project management?
In project management, the practice of preparing estimates, creating timelines, assigning work and checking in throughout the entire process up until billing can be described as quality budget management. More simply, it’s the act of allocating resources effectively and over time to maintain profitability.
Another explanation from Project Insight is:
Project budgets, similar to resource plans, are a reflection of project work and the timing of that work. A comprehensive budget provides management with an understanding of how funds will be utilized and expended over time for projects or operations.
The chart above shows how project costs ramp up quickly once they get started, and level off as the project reaches its end.
Many projects follow this curve, so it’s safe to assume that an accurate project budget will anticipate this and plan accordingly.
How do you calculate project costs?
To get started, find a project budget template that works for your business. Here are a few resources to check out.
- To start filling out your budget, download one of these Vertex42 budget templates
- If you want more information on the thinking and planning that goes into calculating project costs, you’ll want to read this guide.
A guide to project budget management: common challenges and solutions
Now that you have a starting point for your project budget, there are a number of processes and tools to put in place before the project begins. Once these systems are in use, you’ll be able to quickly see threats to project budgets before you’re working on round five or six of reworks.
In fact, with a mindset centered on project budget management, hopefully you’ll never even get to round five.
Biggest project management budgeting problems
- Inaccurate or optimistic estimates that you can’t meet once the project starts
- Not knowing you’ve gone over budget until after the fact, when it’s too late
- Inaccurate timesheets that need to be double-checked and then revised
- Team members not knowing exactly how many hours they have for a specific task or project
Solutions for biggest project budgeting issues
Fortunately, we have solutions to address these common budget issues and more. Follow these steps below for a success.
Step 1. Upgrade your time and expense tracking software
Time tracking gives you a baseline for project budget management. If it’s not up to par, you could be missing key signs that a project is about to cross over into blown-budget territory.
First, look at the software you’re currently using. Is it a simple app that allows anyone to switch tasks and clock in with the click of a button? Or are you still relying on paper timesheets filled out after the day — or week — ends?
Using software that makes it easy for your whole team to stay on track is going to give you better insight into project budgets. And not just because timesheets will be more accurate.
The real benefit of using timesheet software is setting client and project budgets that are tied to time tracking. As your team spends time on each task, you’ll get a real-time update of how the budget is being used. Making it easier to control project costs.
You can assign budgets to individuals, such as 40 hours to your designer and 20 hours to the creative director, or to the project itself.
Your team will know which tasks to work on and exactly how much time they have, and you’ll know that everyone is focusing on the right task.
If your team approaches limits, you’ll get an email alert. Some time and project budgeting tools such as Hubstaff even stop tracking as the budget is reached — giving you built-in peace of mind that you won’t go over before you can talk to the client.
If you do reach the limit, you can hop on a call or reset priorities to make sure your team isn’t going out of scope. Sometimes, this happens as a result of underestimating: another mistake that’s difficult to make when you have 100% time records of previous projects. We’ll talk about this more in the next section.
Software like Hubstaff gives you one central place to track team hours, view productivity metrics, see the progress of different tasks as they’re worked on, assign team members to projects and more. It’s difficult for a project to get out of hand or for a team member to get derailed on a task because you’ll be able to follow along as they go.
As an added bonus, this also limits the number of times you have to interrupt an employee or freelancer just to check in on progress. Optional screenshots — which can also be turned off completely — can help identify roadblocks or unexpected time-wasters. These time-consuming detours can be anything from crash-prone software to inefficient processes that weren’t reflected in the estimate.
Automate project budget management
Set budgets and get alerts automatically
Step 2. Keep an eye out for the dreaded scope creep
It happens in nearly every industry.
You agree to a project and its outline, and start working.
But once you share the first progress update, things change. Turns out your client changed their mind and would like the shower retiled, too. Or, they actually do want to go with the more premium materials now that they’ve seen the mockup. You know what? Maybe a live-action video would be better than a quick animation.
In all of these extreme cases, and in many less noticeable ones, a change to the project should signify a change or addition to the initial estimate.
This can happen especially when your planning documents aren’t as clear as they should be.
We cannot emphasize this enough: There is no detail too small to keep out of your scope documents.
The type of document you use might depend on your field. Whatever you use to get sign-off before you start working, that’s the document in which you should really invest some time.
Be as detailed as possible when you outline the process, the steps it will take to complete, and the associated costs.
Include what is within and outside of scope. The number of meetings you’ll have, the rounds of edits you’ll allow before a change order is necessary, the major deadlines that you will commit to hitting. If you’re a consultant or solopreneur, you might even include mileage you’re willing to travel and associated costs.
A good place to start is by looking at your scope documents, and comparing with templates you can find for your industry.
Smartsheet has a free statement of work template that you can download to start.
Step 3. Who’s running this show?
A common concern, especially after a project has gone off the rails: Well, who’s in charge?
In a smaller company or when you’re on your own, you might not have one person who is dedicated to keeping a project on track.
Speaking of, if you’re part of a growing company, maybe now is the time to find your next great project manager?
Empowering someone on your team with project ownership is crucial to success.
A good project lead will always be asking:
- Has the work been delegated to the right roles?
- Are the detailed timelines prepared and accurate? Have we built in time for unforeseen changes or issues (if possible)?
- Is the client aware of the expectations on them, as well as when they can expect updates?
- Do we need status meetings or check-ins scheduled?
There are many more tasks on a project manager’s plate, but this is a sample of the perspective they can contribute.
Depending on your organization, you may have a project manager or similar role, as well as a project owner, who is likely an executive or leader within the company. Establishing both before the project starts ensures final approval rests with one person instead of a team of people — who likely have varying opinions.
As explained by ProjectManager.com, the project manager on your team might have the title:
- Project coordinator
- Project scheduler
- Assistant project manager
- Project manager
- Senior project manager
These roles exist in construction, software, IT, engineering, marketing, architecture, and insurance companies.
The great thing about having one point of contact for a project is that all changes are communicated to that person.
It’s difficult to miss a detail or pass along information to the wrong person when there’s a dedicated project manager.
Clients also love project managers for this reason, in addition to the fact that they’re more likely to be available than the CEO or CMO when something comes up.
Step 4. Communicate, communicate, communicate
If there’s one way to keep a project from going way over budget, it’s by communicating. Sometimes even over communicating.
Not communicating that the project has gone over budget, or has been derailed, will only lead to more stress and negative outcomes later on.
However, there are also plenty of team communication best practices that can help you control project budgets.
Project management software
Using robust project management software adds a built-in communication channel for your team. As a task is completed, the whole team can get an alert, so that the next person in line can pick it up and run with it.
Everything is in one place: your team updates, documents, checklists, schedules, drafts, and designs.
Finding project management software can be tricky, so try out as many PM tools as you think would best suit your business. There are Kanban-style tools, checklist-based apps, and more complex versions for your specific industry — like these architecture PM tools.
One consideration? Choose project management software that integrates with time tracking so the two are completely synced. It makes project budget management that much easier. One of these tools is our own agile project management software, Hubstaff Tasks that works perfectly with our Hubstaff time tracker (one of best choices for time tracking, according to users on Capterra).
Keeping channels open
There’s nothing more frustrating than not being able to get a hold of someone when you really need to. The same goes for vendors and clients.
To keep this from happening, make sure both teams know the best ways to reach each other, along with the urgency of each channel.
This can help keep a steady stream of communication going throughout a project. Maybe you schedule a weekly or daily call to give updates. Or maybe you post to your project management tool by 4pm every day.
Whatever route you choose, stay committed to it. This will help both teams feel in-the-loop and engaged.
If your team is working from different locations or your client or agency is in another city, consider these trustworthy remote collaboration tools to shrink the distance.
Step 5. Don’t fear change — just prepare for it
By now, you have:
- Software in place to track time and costs
- A clear planning document that everyone has seen and signed off on
- A project manager or lead who is assigned to the initiative
- A communication strategy that ensures prompt responses and clarity
In this scenario, everything is going great. Swimmingly, you might say.
But in a more realistic scenario, you will have changes to make along the way. It’s likely, though not guaranteed, that something unexpected will come up.
This is okay. This is where your initial estimate comes into play.
Sometimes changes are small enough that they won’t affect the outcome. Or maybe it’s an even trade with another step, so there’s no need to panic.
In other cases, a change late in the game can disrupt your team. And you should consider a change order or addendum to your estimate.
To summarize an article from eSub construction software, change orders and scope of work documents ensure both parties are treated fairly — and who doesn’t want that?
How you go about issuing one, however, can be complicated.
No one is going to like feeling nickel and dimed. But there’s a way to build a relationship where both parties mutually respect each other and work together.
The same eSub article offers a simple way to communicate the impact of big changes:
“When the customer requests a change, say:
‘That sounds like a great idea and I would love to get that done for you. I’ll create a change order and determine what additional costs there would be, and then we can move forward.’
Always be candid about the fact that additional work costs money. Never attempt to gloss over it without addressing it directly.”
Pricing out a change and making sure they understand the costs associated may even help a client decide if they want to change directions or not.
Step 6. Face your mistakes
And now, the reason projects go over budget that no one wants to admit. You made a mistake.
A miscalculation, a forgotten step, a damaged product, or misallocation of resources.
Whatever it is, if someone on your team is responsible for some form of human error, the most important thing to do is communicate it.
Be upfront about the error and make sure you have a plan or at least next steps to offer.
Calculating something wrong or forgetting a step, for the most part, can be remedied by having another person review your plans before sending them. The same goes for not having the team or resources needed to deliver what you promised: better, honest planning.
Damaging goods might mean you replace the item yourself.
The sooner you communicate what happened (and take ownership), the sooner you can get to solutions.
Hopefully, your client or vendor is understanding and will work with you on fixing it. However, we all know that some relationships are harder to deal with than others.
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Your turn — Let’s save those projects and profitability
Keeping project costs under control can sometimes feel like chasing a speeding train. Using the tips mentioned here and building a team of productivity-minded professionals can all aid in meeting deadlines and budgets.
With better project management budget planning, you’ll be on your way to growing your business and dazzling clients.
What’s your best advice for staying under budget?