by The Project Budget is a tool used by project managers to estimate the total cost of a project. A project budget template includes a detailed estimate of all costs that are likely to be incurred before the project is completed.
A project budget is the total projected costs needed to complete a project over a defined period of time. It’s used to estimate what the costs of the project will be for every phase of the project.
Large commercial projects can have project budgets that are several pages long. Such projects often have a large number of costs associated with them, such as labor costs, material procurement costs, and operating costs. The Project Budget itself is a dynamic document. It is continuously updated over the course of the project.
Some tools and techniques for estimating cost:
Vendor bid analysis: Sometimes you will need to work with an external contractor to get your project done. You might even have more than one contractor bid on the job. This tool is about evaluating those bids and choosing the one you will accept.
Determination of resource cost rates: People who will be working on the project all work at a specific rate. Any materials you use to build the project (e.g., wood or wiring) will be charged at a rate too. Determining resource costs means figuring out what the rate for labour and materials will be.
Cost of quality: You will need to figure the cost of all your quality-related activities into the overall budget. Since it’s cheaper to find bugs earlier in the project than later, there are always quality costs associated with everything your project produces. Cost of quality is just a way of tracking the cost of those activities. It is the amount of money it takes to do the project right.
Reserve analysis: You need to set aside some money for cost overruns. If you know that your project has a risk of something expensive happening, it is better to have some cash available to deal with it. Reserve analysis means putting some cash away in case of overruns.
Creating a Project Budget
As noted above, there are many components necessary to build a budget, including direct and indirect costs, fixed and variable costs, labor and materials, travel, equipment and space, licenses and whatever else may impact your project expenses.
To meet all the financial needs of your project, a project budget must be created thoroughly, not missing any aspect that requires funding. To do this, we’ve outlined seven essential steps towards creating and managing your project budget:
- Use Historical Data
Your project is likely not the first to try and accomplish a specific objective or goal. Looking back at similar projects and their budgets is a great way to get a headstart on building your budget.
- Reference Lessons Learned
To further elaborate on historical data, you can learn from their successes and mistakes. It provides a clear path that leads to more accurate estimates. You can even learn about how they responded to changes and kept their budget under control. Here’s a lessons learned template if you need to start tracking those findings in your organization.
- Leverage Your Experts
Another resource to build a project budget is to tap those who have experience and knowledge be they mentors, other project managers or experts in the field. Reaching out to those who have created budgets can help you stay on track and avoid unnecessary pitfalls.
- Confirm Accuracy
Once you have your budget, you’re not done. You want to take a look at it and make sure your figures are accurate. During the project is not the time to find a typo. You can also seek those experts and other project team members to check the budget and make sure it’s right.
- Baseline and Re-Baseline the Budget
Your project budget is the baseline by which you’ll measure your project’s progress once it has started. It is a tool to gauge the variance of the project. But, as stated above, you’ll want to re-baseline as changes occurs in your project. Once the change control board approves any change you need to re-baseline.
Advantages of budgeting in a business:
Establishing Guidelines: Project budget allows you to establish the main objectives of a project. Without proper budgeting, a project may not be completed on time. It allows the project manager to know how much he can spend on any given aspect of the project.
Cost Estimating: Once a budget is in place, the project manager can determine how much money can be spent on each component of the project. Hence it also determines what percentage of the available funds can be allocated to the remaining elements of the project. It gives the chance to decide whether or not the project can be completed in the available budget.
Prioritizing: Another advantage of having a project budget is that it helps you to prioritize the different tasks of the project. Sometimes it might seem to be completed at once, but it doesn’t happen due to some inefficiency. A budget will allow you to prioritize which parts of the project can be completed first.
