Budgeting is a vital element of project management, no matter what industry or domain you operate in. Budget overruns are often regarded as a litmus test for assessing the success or failure of projects. Businesses investing in projects often have financial constraints and would want them to be completed within the stipulated costs while ensuring the quality and timely completion as well. It comes as no surprise that project managers end up facing immense pressure for managing budgets effectively and ensuring that they remain in tight control. Fortunately, this is not rocket science if you take the right approach and implement the right strategies right from the start. Here are some that can help you with managing your budgets better and curbing cost overruns through the projects.

Understand the needs and wants of the stakeholders
Often, the needs and wants of the stakeholders in a project aren’t as simple as they appear. The gaps in understanding the expectations can lead to unidentified goals for the managers. It is, therefore, vital to define clearly the true desires of the stakeholders’ right from the start. Ensure that these requirements are accurately identified, documented and confirmed with the stakeholders. At the same time, communicate them to all the parties involved as well. Ideally, these steps should be handled before setting the budgets for the project. Not doing so results in projects started around needs but executed around wants, which elevates the risk of budget overruns in the end.

Budget for surprises
You can never be too sure with budgeting because surprises are likely to happen more often than not. Being realistic can help you deal with such unexpected situations. Also, you can cope better with substantial contingencies. Consider things that you cannot control, such as external environmental factors that impact the pricing of supplies and labour, financing challenges, product/service shortages, and more. Needless to say, you cannot expect current prices to carry through to the end of the project. It always makes sense to have a backup plan for keeping the project budgets on track in case of sudden surprises.

Define relevant KPIs
When it comes to effective budget management, defining the key performance indicators (KPIs) is crucial. Listed below are some commonly used project KPIs for enabling effective budget management.
• Actual cost (AC) indicates the amount spent on a project up to a certain point in time
• Cost variance (CV) defines whether the estimated cost of the project is above or below the defined baseline
• Earned value (EV) shows the approved budget for the project activities performed up to a specified time
• Planned value (PV) refers to the estimated cost for the activities planned or scheduled as of the reporting date
• Return on investment (ROI), as the name suggests, is the indication of profitability and determines whether the benefits exceed the costs

Revisit, review and re-forecast
Project budgeting is not a one-time job, and just letting it run without re-forecasting can result in deviations and even failure. Therefore, frequent budget oversight becomes essential for preventing overruns in the long haul. Conversely, not keeping an eye on your budget, can land you in big trouble. While you must consistently revisit the budget to keep it on track, it is also essential to review the resource usage consistently. This makes a difference because the people working on your project significantly contribute to its cost. Project managers must also carefully manage scope to keep budgets on track as scope creep is another prevalent reason for overruns.

Keep the team members informed and accountable
Another critical aspect of managing project budgets is making sure that your team members are well aware of the current budget status. A well-informed team is more likely to be vigilant about their expenses and even goes the extra mile to save as much as they can. Further, making the team members accountable for their roles and the impact they can have on the overall cost of the project can make a difference when it comes to controlling costs and preventing overruns.

Essentially, project managers should consider the budget as a living part of the projects — something they need to review and track with the team and stakeholders regularly through all the stages till completion and delivery. Doing so may take a lot of work, but fortunately, you can automate cost control by implementing a smart project management software solution. This is one investment that will serve immense potential over the years, and for all the projects your business handles during its lifetime.

Budgeting is a key determinant for project success, and managers need to go the extra mile to keep costs in control and prevent budget overruns. This sounds like a lot of work, but the right approach and right strategies can make things much simpler and easier than you may believe. Here are some smart strategies you can implement for managing your budgets and ensuring success for your project.

Author's Bio: 

The author is a project manager with a reputed construction project management software development company and has a flair for writing as well. She loves sharing her insights by writing and publishing blogs and articles on the latest software technologies.