Project budgeting and forecasting is a major challenge in most companies today. Going from a project plan to a project financial budget can be a difficult and time-consuming task. It took one of our clients 7+ months to complete this process annually. Their project budgeting team was spending over 58% of their time on project budgeting and planning.
Below are some suggestions on streamlining the processes:
- Start by setting a top-level project budget
- Create a high-level project plan with limited financials (include carry-over projects)
- Estimate CapEx, OpEx, and P&L impact early—this will help you understand the aggregate financial impact
- Create categories for your projects (Compliance, Risk Management, Efficiency, run-the-business, etc.)—This will help with prioritization
- Go through a management vetting process early (may take several iterations) to finalize
- Translate costs to General Ledger—Once the project plan has been approved go one step deeper into the financials (break out costs by accounts and cost center)
Sounds basic but starting with a top-level budget will help you manage to a target and provide parameters for you to operate within. Estimating financials early and creating project categories will help you prioritize your projects. The prioritization process is critical because you will be able to quickly remove projects that are discretionary if you need to meet your target numbers.
Translate the final project plan into accounting financial data. This requires breaking down project costs into cost center and account level data. If this is coordinate and executed well then you should have a project plan that is aligned to your general ledger and will facilitate tracking actuals to budget throughout the year.