Managing the budget is a continuous process where project managers are always looking for innovative ways to successfully deliver the project. Improper resource allocation can blow up project costs and cause budget overrun. It adversely affects project profitability, and managers might have to seek additional approval from the project sponsor to continue their work.
Sometimes, the project scope can suddenly change, which can upset the project plan. You may be required to add more resources that were initially not factored in.
The project manager needs to ensure that budgets are revised in the event of such a situation. The project costs can be controlled by reviewing its progress during each milestone and ensuring that there are no discrepancies.
In the following sections, we describe a few useful tips to reduce project costs.
Allocate competent resources during the project initiation phase
Identifying and assigning the right resources during the project initiation phase helps deliver projects within time and budget. It also helps avoid allocating under or over skilled resources to various project tasks. Assigning underskilled resources will cause delivery delays and compromise quality. On the other hand, if a resource manager allocates over skilled resources, their high costs will cause budget overrun.
In a software development project, most of the design and project governance-related decisions are taken in the beginning. Unless this is properly carried out with the help of competent resources, it will be difficult to complete the project successfully. The project managers need to ensure that the key resources are onboarded before the project starts.
At the same time, one must allocate the best available best fit instead of the first visible first-fit resources. Distributing high-skilled resources across all projects instead of assigning them to a high priority one further helps reduce costs.
Cost-effective global resources across matrix boundaries
Matrix organizations allow the sharing of highly skilled resources between projects and functional units. Visibility across matrix boundaries enables you to identify and allocate cost-effective local and global resources by skills. If local resources for a particular skill set are not available, a multi-location policy helps leverage global resources from low-cost locations to do the job.
It helps in reducing project resource costs significantly without compromising the quality. Replacing high skilled resources with low-cost generic ones with similar skill sets helps control the budget. Instead, the high skilled resources can provide mentoring and training to upskill other junior resources.
Sometimes it becomes very difficult to do succession planning for a critical multi-skilled resource. If the role of such an employee needs to be distributed to multiple resources, the cost can go up substantially. This is however possible by distributing work with multiple people from a low-cost location. This way one can prevent a single point of failure in the event this critical resource leaves the organization.
Track forecasted vs. actual spending to control project costs
Resource management software monitors critical project financial indicators such as costs, revenue, profit margins, and overheads. Tracking project financials helps to avoid budget overruns. Project managers can control costs by periodically tracking and comparing the actual spending against the estimated budget. If there is a variance, necessary corrective measures can mitigate project risks ahead of time.
Comparing the forecasted vs. actual spending helps in improving future estimations and aligns to reality.
It also helps in monitoring shared resources who are working in multiple activities. Accordingly, resource managers can adjust the resource mix to control project resource costs in advance.
Certain measures such as resource leveling or resource smoothing can be applied in case a project faces a budget-related challenge. In the first case, the project timeline can be extended to accommodate the availability of resources. In the second example, additional resources can be added to maintain timely delivery.
Save last-minute hiring cost for the pipeline projects
Visibility into pipeline projects in the opportunity or approval stage enables project managers to plan for resource requirements ahead of time. It helps deliver projects within time and budget to achieve higher client satisfaction. Resource capacity planning tools perform a gap analysis to identify excesses and shortages of resources ahead of time.
Accordingly, resource managers can use appropriate resourcing treatments to fulfill resource requirements. They can also effectively plan in advance to make the existing bench resources billable.
These treatments include adjusting timelines or selling excess capacity for excesses and retraining or using a contingent workforce for shortages. Effective pipeline management prevents last-minute scuffling for competent resources and avoids hiring resources at the eleventh hour. Last-minute hiring compromises quality and can create a large bench of mismatched skillset that adversely affects the bottom line.
Boost productivity by job rotation strategy
Low employee productivity dampens the project quality, spikes costs, and eventually results in unplanned attrition. Allocating employees to project tasks without considering their skills and interests can lead to low productivity. Monotonous and limited work opportunities can render a feeling of boredom and career stagnation to employees.
Gartner states that “40% of involuntary attrition stems from the lack of career development opportunities”
Resource managers can boost employee productivity by implementing a job rotation strategy. Exposing employees to different project tasks provides them ample skill-building opportunities. It also encourages employees to build multiple secondary skills in addition to their primary skill set. These secondary skills also improve billability in case there is no available task matching their primary competencies.
Many IT organizations have defined guidelines where a practitioner must be out rotated from a project if he/she spends more than two years in a particular role. The continuity in the same position is only possible with exceptional approval from the senior management. At the same time, the concerned employee also needs to be willing to continue in the same role.
Conclusion
The primary goal of cost management is to eliminate unnecessary costs without compromising the quality of the deliverables. It is a continuous process within project management and requires constant monitoring to maintain the project budget. It identifies discrepancies and helps you to take timely actions and avoid budget. overruns.
The cost also must be controlled from the beginning of the project and should not be left till the end.
Many times project managers reserve 10 to 20 percent of the budget for unforeseen circumstances. They create the project plan with the remaining budget so that there are no last-minute hick-ups. Managing resources effectively improves operational efficiency and significantly reduces project costs.
The Glossary
The SAVIOM Solution
SAVIOM is the market leader in offering the most powerful and configurable solution for managing your enterprise resources effectively and efficiently. With over 20 years of experience, this Australian-based MNC has created its global presence across 50 countries and helped more than 100 customers achieve their business goals. SAVIOM also has products for project portfolio management, professional service automation, and workforce planning software that is customizable as per business requirements.
