Our budget form includes an Estimate column and an Actual column.
We always do an estimate at the beginning of a project, but no matter how many times I say to a project manager, “Don’t change the Estimate numbers, enter your cost into the Actual column,” they want to change the estimate numbers as real cost come in.
I think I understand why. There is a natural urge in all of us as experienced professionals to show we can do accurate estimates.
The problem is, it defeats the purpose. Prices change for various reasons, items are forgotten and memory is not the best tool in budgeting, especially if the project was the previous year.
And, Analyzing Estimate vs. Actual as a final step to any project is the only way to manage cost and insure growth going forward.
We also use budget analysis for:
- Clients to show project cost, realized cost reductions or justified over-runs
- Vendors to look for ways to reduce cost and increase quality
- Our internal team to improve future budget estimates
For our clients, this is becoming more and more important as they are working with us as partners to find ways to reduce cost.