The Fourth Tool: The Budget

In five preceding articles I have described the idea behind becoming a very highly valued five-tools project manager, ready to manage each of the five progress factors:

  • Manage the project, starting with the project charter (discussed in the previous article).
  • Manage the client, starting with the Conditions of Satisfaction.
  • Manage time, starting with the Off Switch.
  • Manage money, starting with budgets.
  • Manage the team, starting with assigning tasks accurately.

Of these, the budget is by far the hardest tool to write about, because it is highly individualistic. It varies in form and approach by project manager, by practice, by type of project, by size/complexity of project, and more. What works for practice A, for example, invariably draws a “that’s nice, but…” from practice B.

So let me approach this fourth tool in this article the way I often do with my clients, by asking a series of questions.

Who Is the Budget For?

Is it for the client? For the practice manager? For the project manager? For the project team?

(These are not the same thing.)

For example, when a client asks for a budget, is she seeking insight into your approach, or is she requesting a total cost that helps her manage her own budget and that acts as at least a suggestion of a fee cap?

Corporate clients themselves have fixed budgets. Every dollar the client allocates to your matter is a dollar unavailable for use on other matters, other projects, other services she wants to provide – indeed, is expected by her own management to provide. Tell her the current matter will cost $100K, and she can make plans for the rest of her budget. Leaving her guessing means she herself needs to guess with other matters. Maybe she winds up overspending at year end, which, to say the least, does not enhance her prospects of promotion. Or maybe she has money left over, which isn’t good either, because it means she may have left projects on the table that she could have accomplished. (That’s career-limiting as well, albeit in a more subtle manner.)

Likewise, a budget for the practice manager (managing partner, general counsel, etc.) may be part of his own budget-management balancing act.

The two preceding paragraphs represent total-spend estimates. What about budget breakdowns?

Budget breakdowns – estimation of costs for various tasks, or groups of tasks – help the project manager define and structure the project itself. How much do you think you’ll spend (or are you willing to spend) in e-discovery? In witness prep? In depositions and research and… and… and? This kind of budget is a project manager’s friend in helping to both structure the project and keep in on track.

Often clients ask for this type of breakdown as well, either as micromanagement or a working partnership. The latter is a positive relationship, the former… well, not so much. Rather than push the micromanaging client into an antagonistic situation, or become an “order-taker,” use the opportunity to share your thoughts and processes, striving to move the relationship towards a true partnership – which may require swapping out the project manager… or the client relationship manager.

Finally, budget breakdowns are extremely useful for the project team. I detail the value and the reasons in my seminars and in Legal Project Management Field Guide, and I’ll offer an overview in the next article in this series.

What’s the Budget For?

Are you simply covering your bases? Providing a number to a client (or to your own management)?

Or are you actively trying to define the tasks that will make up your project, attaching a number to each that represents the time and difficulty of that task?

The latter is “better,” everyone says. Except when it isn’t. Do you know, a year or two out, what the final stages of a long project will cost? How do you even know what the real tasks will be at that point? Do you want to get locked into guesses estimates made too early, before you had sufficient information? Or maybe you’re using a total budget number to negotiate with a client who isn’t sure what he really needs:
You: I think it will cost around $100K.
Client: Ow. What can you do for $50K?
That may sound funny, but this hypothetical conversation has moved rapidly toward understanding this particular client’s mindset, more focused on budget than outcome. Whatever’s at stake isn’t worth $100K in the client’s mind. This type of conversation – perhaps drawn with a bit more circumspection – benefits both client and practice, helping clarify the client’s Conditions of Satisfaction (see the previous article in this series).

That said, in the long run you do want budgets on at least larger projects to move toward more detail as you learn more. You’ll benefit by breaking down tasks and assigning expected hours – and costs – to each task.

Do You Know What Your Resources Cost?

One reason for creating a detailed budget is to ensure you’re assigning resources profitably.

Consider after each of the following statements which resource you’d assign to the task (the statements are cumulative – e.g., statement b includes the facts from statement a):

  1. Consider a task that can be done with equal quality and minimal oversight by a partner in six hours and a senior associate in ten.
  2. The partner bills $700/hour (billing $4200), the senior associate $350/hour (billing $3500).
  3. The partner is better than the associate at developing new business.
  4. The associate costs the firm $200/hour (fully burdened cost), total cost $2000, profit $1500. The partner costs $500/hour, total cost $3000, profit $1200.

Note how statement c and d probably changed your thinking on the assignment.

The last statement, in particular, is critical when assigning resources at a firm. It plays out in the corporate world as well, albeit in a somewhat different form. Yet few project managers have visibility into resource costs.

In addition, assigning hourly costs to equity partners is difficult at many firms, for reasons too complex to address here. (Someone needs to write this article, though!)

Nonetheless, project managers need rough hourly costs to make the best use of resources. Often these are “agreed” or “blended” costs – e.g., “senior partners cost $700/hour” without regard to specific partners and pay packages, which are often confidential.

An effective budget maps costs to the practice – i.e., profit – as well as costs to the client.

What Software Tool Should You Use?

Even the software used for the budget varies from user to user. Some lawyers feel uncomfortable with Excel, for example, preferring the formatting capabilities of Word to the calculations performed within a spreadsheet.

Use the tool you’re most comfortable with. For simple budgets, that tool might be your word processor rather than your spreadsheet. (By the way, Microsoft Word can add up the numbers in a column in a table, as explained here.)

It’s worth learning the basics of spreadsheets as you begin to create more complex budgets. However, you as project manager may want to convey the information to your team via a Word document (or OneNote page) once you’ve finished developing the budget in your spreadsheet.

What Will You Do With It During the Project?

I recommend tracking actual costs against your projected costs for two reasons. First, it lets you know how you’re doing against the overall budget, which is important to both the project team and the client. Second, it gives insight into those areas where your estimates are reasonably accurate v. those with high variance (the technical term is “guessing”).

Most importantly, if you’re consistently over (or under) your estimates in particular areas, you can make adjustments for later stages in the project – and communicate appropriately with the client.

What Will You Do With It After the Project?

I hope you’ll use budgets from past projects to get smarter about budgeting, as per the preceding section.

Budgeting is hard in any project. It’s particularly hard in legal, where the assets have varying skill and productivity levels, and where it’s common to take on tasks lacking the clear history or sharp boundaries that allow you to feel confident about costs.

But just because it’s hard doesn’t mean we shouldn’t do it. We need to accept that our initial budgets will be, um, works in progress. That’s okay. Don’t expect perfection, or even competence, out of your first budget attempts.

Rather, use those initial attempts to learn, to explore what works for you and what doesn’t. Most of all, use them as the building blocks for subsequent budgets that will increasingly shape and reflect the reality of your projects.

And as you improve in budgeting, the reality of those projects will be increasingly successful.

(This article is adapted from Steven B. Levy’s new book: Legal Project Management Field Guide: Five Tools for Busy Professionals. The book covers time management for lawyers – and the other tools – in greater detail.)


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