Today we are going to share the topic of “plan project’s budget and resource”.
Based on the reality of project, we usually have to estimate the resource and budget we need to accomplish the project. The concept of resource and budget somehow looks simple. To our common sense, budget is money, resource is simply people and materials/equipments.
But in actual case, I believe that many project managers do not fully understand what those concepts really mean and how to manage them, especially for the IT project managers. The reason for that is, in most medium/small IT companies, the IT project manager’s main job is to finish the project’s work. Under this circumstance, there would be no need for integration or coordination of resources.
Here is a real case.
Kyle used to work as a project manager in an IT startup company. The typical characteristics of this kind of company includes: “few employees, lots of works, and huge pressure from the projects.” Normally the boss of the company would have to pursue project from clients himself. Once the contract is signed, the boss will take it to Kyle telling him the budget, objectives, total duration of the project, nothing else.
After that, the only thing Kyle can do is to perform the project based on the information given by his boss. At the beginning all seemed to be fine. But normally when it came to execution stage of the project, developments of many functions would experience significant delay. Even if some of the functions had been developed on time, they would go on line in a rush without being tested first, which would cause later defect repairing.
Why did all that happen? Some time later Kyle found that the only developer in his project was also writing code for other projects. That was just too much work for the developer and caused all the delays. As project manager Kyle had to fight for the human resource against other projects/departments.
After a certain time, Kyle’s project was undoubtedly behind schedule and had to be extended. It is commonly known that the main cost of an IT project is human resource. Once the project was extended, all team members has to fully engage themselves into the project, which would increase the cost dramatically.
After the project was accepted by client, Kyle’s boss became very unhappy. He said to Kyle: “Kyle, although the project has been accepted by client, but our company has lost money in this project, the profit of this project has become negative…… ”
I believed that many project managers in real life may have encountered similar situations of the upper case. Some might say that managing budget and resource is the work of big company’s project manager, because big company has many projects which need the project team to profit. But small company doesn’t have that kind of environment, under which circumstance managing budget and resource is unnecessary.
But based on the upper case, the reality is contrary. Reasons include:
To achieve the project all kinds of resources are needed. But they are all public resources to all the projects. If the resource management plan is not well made or resources not being coordinated or controlled effectively, then resource overload would certainly happen.
If we have to satisfy our boss and make profit, then we have to analyze the actual cost of the project. After the analysis, if the project can still profit, then we can report to the boss with solid reasons. But if the project is expected to be over-budget, as project manager, we would also have to communicate with our boss as early as possible, to decide whether the project should be continued.
As project manager, how to achieve effective resource and budget management? There are actually several levels of meaning of this question.
First, how to identify the resources needed for the project? And how to estimate the possible total budget?
As project managers, we all know that scope, schedule and cost form an equilateral triangle. One varies, the other two have to be altered. Therefore, the project scope has to be defined in advance, and then it has to be decomposed into one by one activities, finally, estimate all the resource and time for all the activities.
After that, we have to sum up all resource and time of all activities. Then the total required resource and duration, and even budget of the project would be obtained.
Second, is the estimation of total resource and budget practical?
The key of answering this question is about duration and risk.
In terms of duration, the implementers, developers, and testers of the project are needed for the evaluations: how much time do we need for these project activities? And what are the constraints in professional perspective?
In terms of risk, we also have to search for experts in the organization. Because, once the project enter the execution phase, there will be not that smoothly, and there will be problems. In such circumstance, project managers or experts with similar project experience would be resourceful and helpful for the evaluation of risks.
Third, how do we achieve the goal of NOT to lose money?
In order to achieve the project under budget, one way is to plan well, the other is to manage well. Today our theme is about plan budget and resource, so we are focusing on the planning in this article.
In order to develop a good plan, the key is that extra money and resource must be set apart. In the terms PMBOK, the extra money is “contingency reserve” and “management reserve.”
But in reality, most projects do not set up management reserve, or even contingency reserve. But most project managers are clever enough to add additional 10-20% of budget based on the real estimated cost. Then we can deal with most of the risks without worrying over-budget.
In summary, in this article we have learned the basic concept and methods of estimating project resource and budget based on a practical case. After reading this article, I hope that most of the readers can understand the importance of managing and controlling the resource/budget of our project, and finally to make our work of project management more effective!