Engineers use their expertise to design and create things that make the world move and operate more efficiently. But as their careers advance, engineers’ responsibilities can expand beyond the technical aspects of the profession into leadership areas such as project management. This means they need to learn how to create a project budget.
There are several key components to developing a project budget. Accurately estimating time and costs, planning for contingencies, and deciding how to measure progress are just a few of the considerations that factor into the process. An advanced education — such as an online Master of Engineering Management degree or online engineering management graduate certificate — can give engineers a foundation in finance, accounting, and project management that helps them create reliable budgets.
Why Establishing a Project Budget Is Important
Individuals who are learning how to become engineering managers need to acquire project budgeting skills. Solid project budgets work to establish cost and time parameters that help keep a project heading in the right direction. After establishing those parameters, engineering managers can share them with stakeholders, so all parties agree.
Regularly comparing actual expenditures against budget estimates is also key. This enables engineering managers to identify problem areas and make adjustments to keep projects on track, avoid cost and time overruns, and ensure outcomes meet stakeholders’ needs.
Avoiding the pitfalls that surround project budgeting is critical. If those who create a budget lack a clear vision for the project, they may be unable to identify all the necessary budgetary elements. Failure to identify and incorporate contingencies (such as unexpected changes in requirements) also can result in an unrealistic project budget.
When establishing costs, disregarding purchasers’ knowledge of prices and suppliers can result in inaccurate cost estimates. Inadequate allocation of limited resources within a project budget also can create inefficiencies that increase costs. Failure to communicate the project budget to all stakeholders can result in misunderstandings that lead to rework and cost overruns.
In short, engineering managers must put in the work to make the project budget as realistic as possible. Missing the mark here can mean running out of funds, failing to meet project deadlines, and damaging the company’s reputation. If they know how to effectively budget, however, engineering managers have a valuable tool that assists in achieving goals and minimizing disruptions throughout the project.
Creating a Project Budget
Budgeting can help lead to a successful engineering project. While learning how to create a project budget may appear daunting at first, breaking the process into manageable steps can make the task much easier.
1. Know What Stakeholders Need
Understanding the needs of the project’s stakeholders is the foundation of proper budgeting. Developing that understanding is essential in identifying project tasks and their interdependencies. Not devoting sufficient time to this step can seriously reduce the likelihood of a project’s success.
2. Plan for Contingencies
Considering possible contingencies and creating strategies to address them is crucial to a successful project budget. Not every project will go off without a hitch but brainstorming what could go wrong and developing contingencies can go a long way toward managing unexpected hiccups and staying within time and cost constraints.
3. Capitalize on the Expertise of Others
Taking advantage of available expertise is essential in developing realistic cost estimates. Consulting with experienced purchasers and developing relationships with suppliers can enhance the accuracy of cost estimates in a project budget.
4. Adapt and Revise
Continually revising the budget as a project progresses is important in keeping the project budget agile and realistic. Think of the project budget as a dynamic tool that engineering managers can adjust and refine. This helps keep projects within budget.
5. Establish Key Performance Indicators (KPIs)
Monitoring KPIs can help in making budget adjustments. Examples of common KPIs include actual cost (project expenditures), planned value (estimated costs of planned activities), and earned value (budget for activities completed). Careful selection of KPIs depends on the specifics of an engineering project. Engineering managers should be creative and consider developing unique KPIs that measure performance from the viewpoints of all stakeholders.
Skills for Managing Engineering Projects
Engineering managers who develop expertise beyond engineering’s technical aspects can enhance their prospects of successfully guiding projects within the boundaries of a project budget. Gaining a foundation in finance, for example, can enable engineering managers to select the optimal KPIs to monitor a budget and understand a project’s financial aspects.
Engineering managers who develop their communication skills can improve a project’s chances of success. These skills enable managers to better understand stakeholders’ needs and effectively communicate a budget’s parameters. Strong analytical skills are also essential. These enable managers to identify setbacks before they occur and develop contingencies that can improve the likelihood of a project’s success.
Those in engineering management roles can also use their creativity, problem-solving, and adaptability to navigate issues that may emerge to disrupt a project’s budget or timeline. Additionally, it’s crucial for those in the role to develop strong leadership and organizational skills. Doing so helps them forge a clear path toward a defined budget target and helps them inspire others to reach that target effectively and efficiently.
Learn More About Enhancing Your Engineering Management Expertise
For individuals who seek to enhance their engineering management expertise, Ohio University offers an online Master of Engineering Management (MEM) degree and online Engineering Management graduate certificates.
Through courses such as Project Management, Applied Accounting and Finance for Engineering Management, and Lean Thinking Methods, students can obtain skills that will help them keep an engineering project on course and on budget.
Learn how an Ohio University engineering management education (degree or graduate certificate) can help you embark on a new career today.