How To Manage A Software Project Budget
In this article, we will address the importance of monitoring and managing your project as it relates to cost, as well as provide you with practical tips on how to do so. If your project spend is currently off track, we will look at the value of the additional spend and what to do from this point forward.
To get started, let’s first talk about roles. There are two important roles when it comes to managing a project’s budget:
- The Project Manager
- The Product/Software Owner
The project manager runs the day-to-day activities of a project. They are responsible for delivering what you’ve asked, as well as keeping track of, and communicating with you about:
- Progress (x% complete)
- Status (On target, running ahead of schedule, running behind schedule)
- Project spend to date
- Projected final cost
If you are outsourcing the project, the project manager will most likely work for your software vendor.
The project manager is also responsible for identifying impacts to the project, like changes or issues, and communicating those impacts to you, so you can make informed decisions about the project.
The second critical role is the product or software owner. The product owner is most likely you – the person who is accountable to the business for the project. As a product owner, you are responsible for:
- Setting the software vision
- Defining the software requirements
- Answering questions
- Making continual decisions on the project scope and direction
- Approving changes
- Reporting internally to the business about the project progress, status, spend, and projected budget
The Cause of Project Overrun – Change & The Unknown
Like it or not, change is a natural part of delivering software. The primary reason that projects go over budget is because of changes that occurred during the project. If this is hard to understand, it will help to realize that software is complex and largely intangible.
A computer program can not assume. It has to be told explicitly what to do. During the initial design phase, it is nearly impossible to think through and make all the necessary software design decisions up front. It may not be until you begin to use the software that you finalize your desired requirements and functionality, which leads to change during the project delivery.
Another source of change comes from the business. It can take 4-6+ months to develop software. During this time, the business may implement a new strategy or process and want the software to reflect this.
The third type of change comes from unknown or unplanned issues. Most projects experience an unplanned issue or two along the way. Maybe it is a feature that is taking longer than expected, or an unforeseen technology issue crops up.
In all three cases, the project manager and product owner need to work together to identify and manage change carefully to keep the project on track.
Managing Change & The Unknown
Like with personal finances, if you are not actively managing your spending, it can get out of hand before you know it. As I mentioned before, both the product owner and the project manager have a role to play when it comes to software cost management.
Although it is a critical role, a product owner’s tasks related to budget are pretty straight forward:
- Review the progress of the project, the spend to date, and calculate your own projected total project cost. Do this every 2-3 weeks.
- Reconcile your total project cost with the figures your project manager is providing and the original estimate of the project
- Look for tasks that are taking longer, or are costing more than anticipated and ask questions
- When you want to change the scope of the project, or you are faced with an issue, make cost-value decisions, possibly forgoing some changes if they do not give the business a value that makes sense for the expense.
When it comes to the project manager, he or she should be giving , the product owner, the information you need on a regular basis, such as reports on project spend and total cost projection. If they are not, as a product owner you have the right to insist that this information is provided so you can perform your role.
In the same vein, if a project manager is not alerting you to changes and unplanned issues, or is not explaining the impact of the aforementioned, then as a product owner, you need to ask questions.
How do you know that there might be an issue when your team isn’t saying anything? Your first clue is when you see that costs are increasing faster than the project’s progress. If you are 50% through your budget and 25% through the functionality, something isn’t adding up. Your team may be having some technical issues, some internal issues, or may not have the skillset your project requires. You need to dig deeper to determine the best next step for your project.
Why A Larger Cost Isn’t Always Bad
Delivering a project that costs more than you originally planned is not always a bad thing. If you decided along the way to add new features that makes your product much more valuable than before, then this is a win.
The trouble comes when we get attached to the original estimate and forget about all the new features and adjustments we made along the way. To hold your software project team accountable, ask them to keep track of the approved changes and provide an updated estimate based on these approvals. Also, ask them to keep track of any budget overruns from unplanned issues.
Every time there is an agreed-upon change, your job as a product owner is to internally communicate and get buy-in to the new project budget, and then track to the new number.
Running a successful project is like sailing a ship. During the journey, the ship will experience unforeseen currents and winds. The need for course corrections both in sailing and in software is certain. Success for software is a matter of first recognizing, and then managing change and unplanned issues until you reach your destination.
If you are in the middle of a software project and not sure how to manage the changes and issues you are seeing, then feel free to reach out to us. We are not the right fit for all projects, but we are happy to have a conversation and see if we can help answer any questions you have, and get your project back on track.