You can’t get anything done without money. To get the initiative up and running and to mobilize all available resources, financial support is an essential. As a manager at a project-based company, you will almost certainly be in charge of putting together a project budget and keeping it in motion. Let’s establish what a project budget is before we go into the specifics of how to create one.
What is a Project Budget? #
Project budget is the entire estimated costs required to finish a project within a timeframe. You develop a project budget during kickoff meeting and manage it until completion. A carefully designed budget plan is the gold standard of the modern service economy, where scalability is key to corporate survival.
Benefits of Effective Project Budgeting #
Why do you need to do project budgeting? What are the benefits of having a project budget in place? Well, it is critical to have a project budget plan for at least three reasons:
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To secure the project funding #
As a starting point, it’s critical to the project’s ability to obtain funds. The data will inform stakeholders precisely how much money is required to complete the project and when that money is required.
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Provides the basis of project cost control #
It’s also important to have a well-thought-out budget in order to keep project costs in check. It’s easier to compare the project’s actual costs with the approved budget when you have an end budget estimate. In this way, you’ll be able to see how the project is coming along and whether or not any adjustments to the original concept are necessary.
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Impact the company’s financial health #
Third, the financial health of the organization is directly impacted by the project budget. Budgeting for a project can raise operational margins and actually improve project success if it is done correctly and with resource limits in mind.
10 Steps To Create Your Project Budget #
To satisfy all of your project’s financial needs, you must prepare a detailed budget. We’ve described 10 steps for developing and monitoring a project budget.
1. Refer to your project scope #
First step to create your project budget is to refer back to your project scope. Project scope includes goals, deliverables, tasks, and deadlines. This is needed to define and calculate your budget.
2. Define the resources you need #
identify all the individuals and resources required to finish the project on time. Consider personnel, technology, training, transportation, supplies, rents, and subscription.
3. Estimate the resource rate #
A rate is applied to the cost of materials for the project as well. In order to finish your budget estimate, you will need to have a solid understanding of the costs associated with labor and materials.
Approaches to estimating a project budget #
We all know it’s difficult to predict the size and expense of a project, which is generally a new product, service, or company transformation. The larger and more intricate the project, the tougher this can be. Five strategies can increase project estimation accuracy and there are:
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Bottom-up estimation #
Bottom-up estimating is a reliable technique to budget a project. It anticipates estimating different project components, such as tasks, milestones, and stages, and summing them together to determine the project’s cost. If you’re creating a statement of work (SoW), use this method. Bottom-up estimating is best if you know every project detail. The disadvantage of the bottom-up method is that it requires a great deal of time to focus on the smallest project details.
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Top-down estimation #
Top-down estimating is fundamentally different from bottom-up estimation. It includes splitting the project budget into smaller parts. Top-down estimate is utilized for fixed-price projects. This technique has loose initial project estimates. Before understanding the extent of work and having a project strategy, budgeting is tough. This approach can be difficult when you can’t compare the initial quote to project delivery.
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Analogous estimation #
Analogous estimation is the approach to analyze the data from comparable projects to determine costs. If you’re not a complete beginner to project management, you’ve undoubtedly handled several projects in the past and can identify what works and what doesn’t. Using comparable estimation, you would determine how much the current project could cost the client based on budget information and best practices from previous projects.
Occasionally, analogous estimation can be a back-and-forth process; nevertheless, why not conduct it intelligently by utilizing budget management software, like FoxPlan?
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Parametric estimation #
Parametric estimation is the approach to utilize the project data and factors to estimate the final cost of the project. Unlike analogous estimation, the parametric technique is more precise. It applies cost factors from other projects to the current one so you can make data-driven decisions. It’s more accurate than similar estimation since it leverages many data sets and the statistical link between previous data and variables. With digital initiatives, it is frequently difficult to locate important data points.
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Three-point estimation #
Three-point estimating enables you to think from many viewpoints by weighing the greatest, worst, and most likely budget scenarios. Thus, you can determine a reasonable cost estimate. The advantage of the three-point estimating technique is that you may decrease the danger of budget overruns, as they will be outlined in your strategy, and ultimately meet client expectations.
There are no significant drawbacks to three-point estimation. It may take longer to construct a budgeting using this method, but the extra time is well worth it in the end.
4. Consult with the experts #
Experienced and knowledgeable individuals on your project team, such as mentors, other project managers, and subject matter experts, can also be consulted for budgeting assistance. Contacting folks who have produced budgets will assist you in staying on track and avoiding unnecessary obstacles.
5. Consult with the suppliers and vendors #
Get the fixed cost of operating expenses for project aspects when possible, and estimates for requirements that are not yet determined. Your vendors and suppliers are in the greatest position that can provide estimations for the goods and services they will provide.
6. Confirm Accuracy #
You’re not finished once you’ve established your budget. You should look through it to ensure that your statistics are correct. You don’t want to uncover a typo when you’re working on it. You can also ask these specialists and other members of the project team to review the budget and ensure its accuracy.
7. Budget Baseline and Re-baseline #
Your project’s budget will serve as the benchmark for measuring its progress after it has begun. It is a method of measuring the project’s variability. However, as indicated previously, you will need to re-baseline your project when changes occur. Once a change is approved by the change control board, you must re-baseline.
8. Obtain Approval #
Once you distribute your strategy to your team for comments in order to spot faults and omissions prior to obtaining formal approval, you will have to deliver your estimation of project budget to the key stakeholders. You must also be able to immediately defend the reasoning behind the numbers.
9. Update in Real Time #
When there are changes during the project (this often happens), it’s better to have the project budget updated in real time. The sooner you and the team are aware of them, the better. If your software is not cloud-based and automatically updated whenever your team’s status changes, you are wasting precious and costly time.
10. Get Back on Track #
Real-time tracking project management software, like FoxPlan, is important since it offers you the data you need to get back on course as quickly as possible. Successful projects are those that get back on track more quickly.
What to do when a project is over budget? #
There are numerous reasons why numerous projects exceed their budgets. It could be due to insufficient funding, inaccurate cost estimates, underestimating the project’s complexity, unforeseen circumstances, a missed deadline, an expansion of the project’s scope, or a lack of experience managing projects.
Read Also: Tips To Become Successful Project Manager
The next question would be, “what to do when our project is over budget?” Well, having a project go over its budget is never a pleasant experience for a project manager. Project budgets can be successfully managed, and overruns can be avoided or brought back into line. If you want to succeed, you’ll need to keep an eye on your budget and respond quickly:
- Request an increase in budget with an explanation and a plan for regaining control of expenses.
- Reduce the scope of the project or delay low-priority initiatives to subsequent projects.
- Look for ways to reduce the project’s overall cost by cutting corners somewhere else.\
- Move resources to a more cost-effective source in order to save some money. You may, for example, delegate some work to a more junior member of the team, consider upgrading rather than replacing equipment, or conduct training via the internet rather than in person.
- Plan ahead and use your budget wisely.
FoxPlan Helps Projects Stay on Budget #
As you probably understand by now, the project budget is an essential component of project planning and management. Managing project budget is likely the most challenging and crucial aspect of project management.
While it is possible to construct a project budget manually, you will be more accurate if you use FoxPlan budget management software, particularly if your project is large, complex, and has many milestones and dependencies. FoxPlan Budget management lets you manage your project over several years and provides a multi-year perspective on your commitment so that you can follow your project budget spending.
Want to learn more about how FoxPlan Budget Management tracking can help in keeping your project on budget? Contact our team now to see FoxPlan in action, or sign up for FoxPlan free trial to begin designing your project immediately.
