Budgeting – Part 1
As a part of the funding process you will need a budget. That’s easy you say – I’ll just take the proposal from the consultant I hired or the vendor I want and just use that. Let’s examine why that might not be the best idea.
First off, what if the total cost of your full system is a very large amount (as I’m sure it will most likely be)? This number will probably scare anyone who needs to approve it. A better tact here is to break the system up into phases, that if approved will allow more bite sized expenditures by the company. This allows both them and you to have some more immediate wins rather than needing to wait a long time for a large system to be completed.
In practice it would work like this:
Phase 1 – being able to view your assets in a central system would be a huge gain in productivity for your company. What costs could be saved?
Phase 2 – new products are launched that take advantage of phase 1
Phase 3 and later – things like clip editing, analaytics and delivery could be added.
By designing a phased approach monies for the system could be spread out over many years rather than needing to be committed all at once. Since there is always a cost for money of either interest being charged on loans or loss of funding for other endeavors, companies like to try to keep their obligations as fluid as possible. The other advantage of phasing means you can design in technology improvements or at least be able to take advantage of them as they appear over time. Building a large system at once means you are locked into todays state of the art.
Another area to look at is unexpected costs. Any complex project will have many unexpected twists and turns and you need to be nimble in how you deal with them. Some people budget a set contingency fund of 10 or 15 percent for this. Often times this is the first thing cut from the budget so be careful calling it out as a line item.
Rather than just a flat overall contingency amount look at the individual components of the project and based on their costs try to estimate what might happen if things go wrong. Usually large projects (especially with unproven technologies) can have cost overruns of up to double the estimates in many of the line items. Be open that this might happen but you cannot just double every line item and call it a day, that is not a responsible way to manage a project. A better way to analyze this is to sit with the vendor or consultant and have them walk you through every aspect of the project. Make sure to ask pointed questions on what can go wrong in each area. This should include:
What new techniques or technologies are being developed to address this need?
What is the track record of the team in this area?
You will also be using the information you collected on them when you did your due diligence (checking references, etc) to see how past projects fared. If you know that something is complicated from your own experience – working with a problem vendor that needs to tie into the system, massive notes from stakeholders, etc then you need to factor that in as well. This is why budgeting is often more art than science and experience from previous projects can help you in this area. Feel free to use consultants or other industry resources to aid you here.
Next time, we will take a look at how to estimate how much time you will need to spend on project management, flat bidding and contracts.