Understanding Project Budget Accuracy and Precision

Effective project budget management requires that you understand both the accuracy and precision of your budget.

Let’s define these terms, and how they impact budget management.

Accuracy refers to the correctness of an estimate. Our order of magnitude, budgetary and definitive estimates are descriptions of accuracy. In the early stages, our order of magnitude budget range is wide (for example, 75% greater to 25% less).?Therefore, the accuracy is low. But, as more project data such as actual purchase prices become known, the range becomes tighter, and the accuracy is higher.?

While our three estimation descriptors are customary, it is important you understand what costs you don’t know, and when you will know them for certain. For example, if you will be sending out a tender for a product or service, you won’t know the cost until that tender process completes. If that cost is 60% of your project budget, you can’t put out a budgetary estimate until that cost is known. So, your accuracy depends on your certainty about the costs to hit your project, and when they will be understood.

Precision refers to the degree of exactness associated with the estimate. For example, an estimate of 8 hours is more precise than “sometime this week.” Sometime this week could mean 8 hours, or 30! It’s best to be as precise as needed for your project, but no more. For example, if you had a month-long project, you need to be more precise with your time estimates. If something takes much longer than planned, you don’t have much time to recover. If your project is one year-long, a day or two on a given task won’t make that much difference. So, you can be less precise.

So, be as precise as you need to, so you are in control of your project budget. Stakeholders want you to understand your budget status. At the same time, team members don’t like to be micro-managed by being asked to track their time to the minute. Find the right balance for you, your team, and your budget.?

Additional tips can be found in my project management and outsourcing classes on LinkedIn Learning, including:

·??????Project Management Foundations: Budgets which can be found at: https://www.dhirubhai.net/learning/project-management-foundations-budgets-19024810/project-budgeting-focus-on-value?autoplay=true&u=2125562

·??????Outsourcing Fundamentals, the first of six courses on outsourcing, can be found at: https://www.dhirubhai.net/learning/outsourcing-fundamentals/key-components-of-outsourcing?autoAdvance=true&autoSkip=false&autoplay=true&resume=false&u=0

?This article is part of Bob’s Reflections newsletter series , which discusses project management, outsourcing and “intelligent disobedience”, a leadership approach. If you want more of this content, you can?subscribe to receive notifications when a new article posts.

Want to learn more about the topics I talk about in these newsletters? Watch my courses in the LinkedIn Learning Library or check out https://intelligentdisobedience.com/