INTRODUCTION

Hello, welcome to the project management world! Have you ever felt lost in the project management jungle, grappling with budgets, portfolios, and costs? Don’t worry; you're not alone. Navigating the complexities of project management can sometimes feel like exploring uncharted territory. Imagine your project as a lush garden, each task a bloom waiting to flourish. In this blog post, we embark on a journey to discover the intricacies of budgeting and cost control, with a special focus on Agile methodologies. 

Today, we will explore the critical steps of determining the budget, providing you with a roadmap through the dense vegetation of project finances. Additionally, we will dive into advanced techniques such as Earned Value Management (EVM) and Project Portfolio Management (PPM), essential tools for taming the wild terrain of controlling costs in your project garden.

Determining the budget

First, let's take a look at the process of determining the budget in the world of project management. Determining the budget is essentially the careful planning and distribution of estimated project costs to specific tasks or resources over time. This process, often referred to as cost budgeting, gives rise to a time-phased budget known as a cost baseline, serving as a crucial reference point for assessing project performance and financial needs.

The term "cost baseline" is essentially a dynamic budget that project managers use to keep track of project spending over time. It includes key elements like control accounts, which are like main categories in a budget, encompassing work package cost estimates and contingency reserves. Control accounts ensure financial stability, while work package cost estimates, made up of activity cost estimates and contingency reserves, act as a safety net for handling unexpected challenges.

As you can see in the [Figure 2], Surveyor Pro project is where the cost estimate smoothly aligns with the project schedule, creating a detailed cost baseline. This baseline, similar to a well-planned budget, incorporates contingency reserves, much like setting aside extra funds for unexpected project twists. As noted by Elizabeth Harrin [2], the process of determining the budget is explored, underlining its significance as a foundational step in project management.

So, determining the budget involves thoughtful financial planning, where control accounts and meticulous estimates, inspired by the Surveyor Pro project and backed by the insights of Elizabeth Harrin [2], blossom into a reliable financial guide for project managers navigating the dynamic landscape of project costs.

Earned value management

Now, we are going to look at Earned Value Management (EVM), a powerful technique for gauging project performance. Earned Value Management (EVM) is a project performance measurement technique that integrates scope, time, and cost data. It assesses how well a project is meeting its goals by comparing planned and actual data. In simpler terms, it is a method to track if the project is progressing as anticipated and within the budget. 

The term "planned value (PV)" refers to the authorized budget allocated to scheduled work. Actual work completed is expressed as "earned value (EV)," a measure of work performed in terms of the budget. The difference between earned value and actual cost is known as "cost variance (CV)," providing insights into whether the project is over or under budget. Additionally, the "schedule variance (SV)" indicates if the project is ahead or behind schedule.

Project portfolio management

Now, let's take a good look at Project Portfolio Management (PPM), a strategic methodology for effectively overseeing and optimizing a comprehensive suite of projects within an organization. Project Portfolio Management (PPM) is a sophisticated approach to managing and controlling a spectrum of projects or investments, treating them as an interconnected ensemble. As Janet Poses [3] mentioned, it serves as the curator of a diverse collection of projects, aligning them with organizational objectives and ensuring their collective success.

PPM operates on a hierarchical structure, offering five levels of maturity according to Kathy Schwalbe [1] from

simplest to most complex, as follows:

1. Put all your projects in one database.

2. Prioritize the projects in your database.

3. Divide your projects into two or three budgets based on type of investment, such as utilities or required systems to keep things running, incremental upgrades, and strategic investments.

4. Automate the repository.

5. Apply modern portfolio theory, including risk-return tools that map project risk on a curve.

This structured approach is akin to a seasoned gardener organizing plants based on their specific needs, cultivating a garden that thrives in harmony.

Consider Jane Walton, the Project Portfolio Manager at Schlumberger, who showcased the power of PPM by saving the company a remarkable $3 million in a single year. Much like a vigilant gardener orchestrating a multitude of plants in a garden, Jane organized 120 IT projects into a coherent portfolio, identifying overlaps and redundancies, thereby ensuring efficient resource utilization. Jane Walton's success story exemplifies the effectiveness of PPM, as highlighted in the context of IT projects. It underscores the critical role PPM plays in making well-informed investment decisions and optimizing resources across diverse projects. 

 
Therefore, Project Portfolio Management emerges as a seasoned horticulturist, skillfully cultivating and coordinating a diverse array of projects into a harmonious symphony, ensuring optimal resource allocation and strategic alignment with the overarching goals of the organization.

Conclusion

Today, we talked about figuring out budgets, understanding Earned Value Management (EVM) for keeping projects on track, and Project Portfolio Management (PPM) for overseeing lots of projects in a smart way. 

To sum up, being great at project management means setting clear budgets, using EVM for smart project checks, and using PPM for a bird’s-eye view of everything. Putting these things together makes projects better, saves resources, and matches big goals. Following these basics helps companies handle tricky projects, make good things happen, and fit into the bigger business plan. It's like having a winning strategy for managing projects successfully!

References

[1] Schwalbe, Kathy. Information Technology Project Management, 9th Edition.

[2] Harrin, Elizabeth. “Project Cost Management: Determining Your Budget”.
      Project Management.com,  link to the article.

[3] Poses, Janet Poses. “Maximize your capital budget using project and portfolio management”.
      Oracle Construction and Engineering Blog, link to the article.

Graphics References

[FIGURE 1] Illustration of Project Management Budgeting and Controlling Costs, link to the graphic.

[FIGURE 2] Surveyor Pro Project Cost Baseline.
    Page 305, Schwalbe, Kathy. Information Technology Project Management, 9th Edition.

[FIGURE 3] Earned Value Usage
    Page 313, Schwalbe, Kathy. Information Technology Project Management, 9th Edition.

[TABLE 1] Earned Value Calculations for One Activity after Week 1
  Page 308, Schwalbe, Kathy. Information Technology Project Management, 9th Edition.

[TABLE 2] Earned Value Formulas
  Page 308, Schwalbe, Kathy. Information Technology Project Management, 9th Edition.