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Comprehensive Cost Control – More Than Just a Project Budget

Owner & Stakeholder Responsibility

Comprehensive Cost Control

Many authority leaders do not have a complete technical understanding of every aspect for every project – nor should they. In general, authority leaders can see the larger picture and balance the needs of competing demands.

When referring to “projects,” it would be a mistake to only think of physical infrastructure changes and improvements, as these are only half the picture. Every meaningful change within the organization, such as wide-scale reorganizations, administrative or IT improvements and similar efforts, involves a project or program and should be treated the same way.

Importance of Effective Project Budgets

Before we examine the development of a project budget, one should under- stand why this essential business element, combined with subsequent performance tracking, is so vitally important.

Fundamentally, the approved project budget is a playbook for project success. A properly developed project budget identifies when and how many resources are needed, including cash flow, material acquisition and internal labor needs. Done poorly, not only is the overall project at risk, but the entire Authority’s budget can be jeopardized.

Another reason effective project budgeting is critically important is that it should incorporate procedures for measurement, control, and adjustment during the project execution phase.

Determining actual project performance against the approved project budget is imperative to success. At times, focus is placed on a project’s current state (over budget, on-time, etc.) without owners or stakeholders posing tough questions regarding alignment with the originally agreed upon budget.

Remember, as owners and stakeholders, responsibilities include setting expectations and taking deliberate actions to maintain the approved budget, scope, and timeline.

Preparing the Project Budget

Most authorities and design professionals have established guidelines and procedures in place for preparing project budgets.

There is also no shortage of available resources that delve into the details of preparing project budgets, from articles and software programs to entire courses and curriculum.

Regardless of procedures or methodology, here are key elements that every project budget should include:

  • Scoping Document – Clearly identifies the justification for the project, complete function of finished project, acceptance criteria and financial sources.
  • Activity Cost Estimates – Estimates resource requirements (labor, materials, equipment, contracts, etc.) for each task item or activity package.
  • Project Schedule – A timeline that focuses on physical deliverables AND cost or financial expenditures over time.
  • Risk Analysis – Asking and answering virtually all questions related to potential changes in funding, legal / public relations, labor, material, environment, and contracts. Changing conditions and other factors that routinely impact original project budgets should not be surprises to owners or stakeholders.
  • Probing and developing a thorough Risk Analysis is an excellent mechanism to identify and prepare for unexpected conditions. Unfortunately, they are often not included as part of the project budget or plan.
  • Measurement & Control Metrics – Control metrics or Key Performance Indicators (KPIs) are widely available in the project budget and project management realm.

The crucial component is requiring a project’s current state performance be measured, tracked, compared, and reported against the approved project budget.

Not In a Vacuum

In preparing this article, the over- whelming theme of collaboration of all stakeholders came to the forefront as a critical component of overall budget and project success. On the surface, this seems to not only make sense, but one would assume to be “the norm.”

This is not always the case, especially for projects that seem simple or those which require cooperation between departments or organizations.

Particularly important is to involve those that must work with the final product daily. According to Scot Fertich, Engineering Director for Lancaster Area Sewer Authority, “Involving the daily operators and maintenance workers in defining the scope and function is very important.”

Is This Level of Effort Worth It?

According to a recent study by the Spandish Group involving over 50,000 projects of various types and sizes, 74% experience time overruns, 59% experience cost overruns, and 69% have scope changes after the approved project budget.

Although trending in a better direction over the past 10-15 years, these staggering realities are still damaging to overall budgets and project portfolios.

According to Chris A. Borger, P.E., Operations Engineer / Manager for the Brodhead Creek Regional Authority, “We do our best to minimize changes during construction by striving to get clear, thorough plans and specifications. At times, especially with multi-contract projects, we conduct peer reviews to avoid issues during construction. We would rather spend an additional $10k during the budgeting and planning process to avoid $100k or more on bids and change orders.”

What is Most Important?

So, we have three essential Project Management components: Project budgets and plans that must be developed collaboratively with the right players; performance, which is being measured against approved budgets; and overruns, which are being aggressively challenged to keep cost and time aligned with what was approved.

How do you prioritize which of these elements is most critical when all must be present to truly achieve success?

Authorities that have these elements in place understand that the single most important determinant of success, or achieving results defined by the project budget, is the competency and professional courage of the owner to develop and adhere to a comprehensive budgeting process.

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