If your budget is the roadmap to completing the project, what happens when the destination changes? You assess where you are, and how you got there, then redo the budget to complete the journey. Managing resources is filled with surprises.
Change orders in projects are the norm, not the exception, so the seasoned project manager won’t be stumped by recasting the budget to account for altered objectives. How well you can adjust your budget to a scope change depends on how well you budgeted the project in the first place.
Here are 10 steps to updating your project budget when the project scope changes.
1. Start with the work completed
See how the project plan looks when you add the new objectives. How many more resources do you need? Then see what can be tweaked to keep you on or close to budget with the new objectives, e.g., removing nice-to-have features from a software project.
If some completed work can’t be used, don’t jettison it too quickly. Put that work on hold—you never know when objectives may change again, and your management may be able to collect for work completed from the customer.
2. Compare your budget to actual spending
Identify how much of the original budget has been spent, and how much remains. If you’re using a good project management tool you should be able to figure this out pretty quickly. This information gives you a reality check of where you stand versus budget. And don’t forget: Focus on the big variances from the budget; don’t sweat the small stuff.
3. Scrutinize scope
Assess whether the change order affects your deliverables and if it consequently affects the resources to produce those deliverables.
4. Determine how the change order will affect costs
Project change orders often come with an updated budget—so you could be facing more money allocated, or less. Either way, the project manager’s approach doesn’t differ greatly here (except maybe in the stress department). Bottom line: Determine how much funding is needed to achieve the new objectives.
5. Negotiate with your client
Once you know how much your project will cost to complete with the change order, it’s time to let the client know. This probably means some negotiation is going to take place. Whoever is asking for the changes might start from a weakened position, especially when the unsaid part of the conversation is, Why didn’t you ask for this in the first place? At this point, you can negotiate on the budget or the scope—of both. If you’ve done your homework, bring up any specific elements of the deliverables that would be difficult or costly. Give the client the full picture and try to make the conversation show that you’re in this together, and not working against each other.
6. Renegotiate with outside contractors if needed
If the change increases project scope, you might need to hire outside resources. If the budget is slashed, you face the delicate task of reducing the amount of work for your contractors, and even laying some off, while keeping the team motivated and focused on meeting the new deliverables.
7. Be transparent
Keep your team informed of all change orders and budget updates. Team members want to know how the changes will affect them. Let them know so they can focus on their work, rather than worrying about what’s going to become of the project (and their contribution to it). Furthermore, when you’re open about scope changes, team members can contribute ideas and solutions.
8. Design a new work plan
Keep your team focused on the new deliverables. Use a project planning software to outline the plan so individuals can recalibrate what they must do and when they need to finish their work.
9. Continue to manage project scope
The change order gives the project a new scope, but that doesn’t mean you’re immune from any future scope creep that can wreak havoc on your budget. Try to put yourself in a proactive position, rather than a reactive one.
10. Manage client expectations
A change order process can make your client more anxious than usual to see how you deliver. Keep your client updated and communicate clearly about how the project is progressing—and how any possible glitches might affect the timeline. The first few status meetings or reports after a change order take on greater importance for the project manager, team, client and your organization. The more you stay in touch with your client, the fewer unpleasant surprises you have to deliver. Which is good for everyone.
Use the comments to share your shortcuts and hard-learned lessons for changing a project budget after scope changes.