7 Best Practices of Resource Forecasting to Optimize Project Costs
Resources play a crucial role in achieving successful project delivery. Whether human, equipment, facilities, or process, a project needs help to get the work done on time and within budget. Recent market fluctuations and economic uncertainties fueled by the ongoing COVID 19 pandemic have wreaked havoc on business sustainability.
As human resources are expensive, project managers cannot afford to rely on guesstimates to meet the deliverables within a dynamic business environment.
According to Deloitte’s Global Cost Survey 2020, “74% of organizations preferred cost reduction over other business initiatives in the post-pandemic era.”
So, to stay profitable amid the current volatilities, accurate estimation is a prerequisite. It is when resource forecasting comes into the picture.
Before delving deep, let’s get the basics right.
What is resource forecasting, and what is its significance in project management?
As the name suggests, forecasting defines the probability of future events and helps project managers implement corrective measures in advance. Resource forecasting is the process of predicting resource metrics used in projects such as demand, supply, cost, vacancy, etc., in advance. It usually occurs in the project initiation phase or can happen as early as the sales process stage.
Resource forecasting is a critical function of the project resource planning process. It ensures that projects are suitably staffed and equipped to address any sudden changes during the entire lifecycle. Using resource forecasting techniques, managers can predict future workload, skill requirements, project financials, resource utilization and apply corrective measures accordingly.
In the absence of appropriate forecasting tools, projects might get delayed or result in budget overruns. It has a cumulative impact on the deliverables and leads to project failure and low client satisfaction. Therefore, businesses must invest in a robust resource forecasting solution to stay profitable and ahead of the curve.
Best practices of resource forecasting and how it helps optimize project costs
Cost management is one of the crucial responsibilities of a project manager. Let’s understand how resource forecasting contributes to cost optimization:
1.Maximize profitable utilization and reduce resource cost
Keeping your team members busy doesn’t necessarily translate to productivity. They could be either occupied on non-billable or mundane BAU activities. So how can you ensure the productivity of your project team for a high ROI? Billable utilization is an essential KPI of project management that directly contributes to revenue generation and project effectiveness.
Using resource forecasting solutions, project managers can gain insight into billable, non-billable or strategic work ahead of the curve. Accordingly, managers can mobilize resources from non-billable to billable/strategic work and improve project profitability. Forecasting analytics helps avoid over or underutilization and facilitates optimum utilization of resources against their capacity.
2.Minimize last-minute hiring/firing costs
Often, projects are unable to kick off at the right time due to insufficient resources. As pointed by PwC Project Management insights, “lack of resources contributes to 30% of project failures.” Resource forecasting helps predict the resource demand for future and pipeline projects. Using capacity planning, managers can identify the excesses or shortfalls ahead of time and apply appropriate resourcing treatments to bridge the gap. If the requirement is more than capacity, there is a shortage of resources, which means you cannot start the project. On the contrary, if the demand is less than resource supply, there is an excess, which hits your bottom line.
In either case, time and budget overruns are inevitable. Corrective measures such as training programs, adjusting project timelines, hiring permanent or contingent resources, or selling excess capacity helps. These proactive measures eliminate unnecessary hiring and firing costs and help create a future-ready skilled workforce. Thus, resource forecasting facilitates informed hiring decisions and allows sufficient lead time to reduce unwanted cost escalations.
3.Eliminate employee burnout and deliver within time and budget
Often, managers constantly overload few high-performing resources with work as they have proved to deliver efficiently in the past. This practice can result in employee burnout, increased absenteeism, compromised quality, or worse, unplanned attrition. Consequently, the project profitability is at stake, and cost escalations become unavoidable. Using a modern resource forecasting solution, managers can gain foresight into workforce utilization and take preventive measures to avoid overallocation in the first place.
Forecasting analytics enables managers to consider resource availability and capacity before assigning them to projects. It ensures that employees are not overburdened. Furthermore, resource forecasting helps managers to avoid under/over skilled resources to projects. Underqualified resources delay projects and cause subsequent budget overruns. Overqualified resources may feel disengaged, unproductive, and overshoot the project costs. Enterprise-wide visibility helps allocate the right resources to projects at the right time and cost.
4. Reduce bench-related costs and manage your bottom line
A study by HBR points that bad hiring decisions can lead to 80% of employee turnover. It can cause a large bench of mismatched skillsets that adversely impacts the bottom line. Resource forecasting solutions have inbuilt people on the bench reports that show which resources will end up on the bench after a specific date. Using this report, managers can minimize bench-time and improve project profitability by proactively looking for appropriate tasks for resources before getting rolled off.
Furthermore, project vacancy reports provide visibility of resource demand across the enterprise. Using these reports, project managers can deploy appropriate benched resources to tasks. Resource forecasting also improves the billability of benched resources by providing training or shadowing opportunities. Project managers can address other resource shortfalls by making informed hiring decisions.
5.Improve employee productivity with competent resource allocation
When managers consider employees’ skills and interests before assigning them to tasks, it enhances their engagement and productivity. It helps managers deliver projects within the stipulated budget and timeline. As already mentioned, resource forecasting predicts the resource requirements for future projects in advance. Using these analytics, managers can start planning for fulfillment.
Studies have shown that empowering employees to select projects of interest increases task ownership and motivation. Accordingly, managers can publish the resource requirements within an enterprise on an appropriate resource management tool. Relevant resources are notified and can show their interest in joining the project. Managers can allocate suitable candidates from the potential applicants to ensure higher engagement, productivity, and eventually project profitability.
6.Track and improve project financials ahead of the curve
Cost management is one of the essential functions of project management. Besides estimating, allocating, and controlling the project budget, cost management also helps businesses predict future expenses to minimize budget overrun. Using resource forecasting solutions, project managers can monitor critical financial indicators such as costs, revenue, profit margins, and overheads.
Tracking and comparing the actual spending against the estimated budget helps control budget overruns. If there is a variance, necessary corrective measures can mitigate project risks ahead of time. Comparing the forecasted vs. actual spending helps improve future estimations and align them to reality. Forecasting analytics allows monitoring of shared resources working on multiple activities. Accordingly, managers can adjust the resource mix and control project costs in advance.
7. Timely availability of resources helps avoid cost escalations
Bottlenecks are a nightmare for project managers, especially when they happen close to the deadline leaving no scope to prevent delays or cost overruns. One of the causes of bottleneck could be when a critical resource’s unavailability in completing one task delays other dependent tasks. Subsequently, the project fails to deliver on time and within budget.
Resource forecasting can help make the right resource available for the right project at the right time. Project managers can use resource optimization techniques to avoid resource bottlenecks. They can apply resource leveling, i.e., extending project timeline to accommodate available resources or resource smoothing, wherein additional resources help in timely delivery.
To sum up, resource forecasting is a crucial element in project planning. Ideally, managers must control project costs from the beginning and not leave them to the end. Cost management primarily helps eliminate unnecessary project costs without compromising the quality of the deliverables. It is a continuous endeavor that requires constant monitoring to stay within the budget. Resource forecasting identifies discrepancies and helps you to take timely actions and avoid budget overruns. Some project managers reserve a small fraction of the budget as a buffer for unforeseen circumstances. They formulate the project plan with the remaining funds to avoid last-minute hiccups.