Surviving the Budgeting Process, Part 2

Last week, I wrote about budgeting for non-labor costs; this week, we’ll finish up with labor and travel costs.  Note that we don’t have a project plan or schedule, and our understanding of the scope is still somewhat limited.  All we really have at this point is a rough idea of the goals and expected duration, and just enough understanding of the technical approach to make some assumptions about how we’ll staff the project.  So let’s begin by identifying the kinds of labor skills we’ll need, and whether they will be internal or external.  Then we’ll take a rough guess of total hours, and allocate them across the expected project time line.  Based on this distribution, we’ll estimate the number of “trips” our traveling team members will have to take.  Finally, we’ll use expected labor rates to calculate labor costs, and a bit of cost averaging to estimate total travel costs.

You don’t need to identify every role in the project, but you do need to identify general classifications and group them by rate.  Be sure to separate groups based cash flows and accounting; if internal users will participate in the project, but their time will not be billed against the project, don’t lump them in with other internal folks whose labor will be cross-charged or otherwise be accounted for.  Also, be sure you distinguish between external and internal labor.  Here’s an example, based on our timeline from last week.

Category Rate M1 M2 M3 M4 M5 M6 M7 M8
Users $0 0 0 0 80 60 60 300 500
IT PM / BA $80 160 200 200 200 200 200 200 200
IT Tech $75 20 60 40 20 100 60 60 120
SME’s $60 80 120 120 160 160 160 160 160
Vendor PM $150 40 40 40 40 40 20 20 20
VendorTech $120 40 80 80 80 120 80 40 80
Contractor $100 0 0 160 160 160 160 160 160
Internal $ 19,100 27,700 26,200 27,100 33,100 30,100 30,100 34,600
External $ 10,800 15,600 31,600 31,600 36,400 28,600 23,800 28,600
Trips $950 2 4 4 4 5 4 3 4

 

Note that labor utilization builds as the project gets closer to the pilot go-live, drops off again immediately after the pilot, and then peaks in the final two months.  Naturally, this is just a rough guess, but it helps us to visualize the expenses.  We can also use what we know about the team members who we expect will be traveling as part of the project to estimate travel costs.  My favorite technique is to choose two likely cities of origin, look up the on-line cost of a ticket booked two weeks in advance on Southwest Airlines, and increase it by 50%.  Use your organization’s travel policies and a few phone calls to make your own estimates.   Here’s how I got to the $950 shown above:

Air fare – high $          520
Air fare – low $          250
Hotel average $          110
Hotel nights 3
Per diem $            45
Local travel $          100
Avg trip cost $          950

 

Now you can calculate the total internal and external labor costs, and travel costs from your estimates.

Total Internal $  228,000
Total External $  207,000
Total Travel $    28,500

 

This rigorous approach to budgeting won’t necessarily give you a completely accurate forecast, but it will give you a much clearer picture of what you had in mind when you get to month three and realize you’re already over budget.  Variances are much easier to explain when you can pinpoint which actual expenses deviated from the high-level plan.  Because you don’t just have to survive the budgeting process – you also have to survive the project.

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About Dave Gordon

Dave Gordon is a project manager with over twenty five years of experience in implementing human capital management and payroll systems, including SaaS solutions like Workday and premises-based ERP solutions like PeopleSoft and ADP Enterprise. He has an MS in IT with a concentration in project management, and a BS in Business. He also holds the project management professional (PMP) designation, as well as professional designations in human resources and in benefits administration. In addition to his articles and blog posts, he curates a weekly roundup of articles on project management, and he has authored or contributed to several books on project management.

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