Project budgeting begins at the project planning stage. Also known as an expense plan, it provides an overview of all tasks, activities, etc. related to the project and serves as the basis. Effective budgeting helps you accurately forecast project expenses and allocate funds to various project tasks and resources. This allows businesses to secure revenue and satisfy stakeholders. Resource cost is also a major contributor to project budget, and a work scheduling app enables the achievement of an accurate project budget.
This article discusses the importance of project budgeting and how to create the best possible budget for each project development phase. But before we get to the point, let's define the term project budget.
A project budget is a financial document that shows the total cost of all activities, tasks, and milestones that a project must complete in a defined period. In other words, financial documents that must be managed and controlled effectively in order to avoid cost overruns and ensure project success.The work scheduling app enables project managers to have a smarter and easier estimation of the project budget using its intelligent features.
After creating a project budget during the planning stage, the budget should be monitored through the final stages to ensure there are no variances, or proactive corrective action should be taken to correct course if necessary. A well-planned project budget is therefore the holy grail of successful project management.
Planning for project expenses is an important part of creating a project budget. To do this, we need to classify them. Check out the details below.
- Direct costs: This includes salary rates for full-time and temporary employees required to complete the project. It also contains items such as software, equipment, and other specific materials that your team needs to complete their work.
- Overhead: Anything that is not directly related to the completed project, such as travel and accommodation costs, but must be paid for and budgeted for, is classified as overhead. Overhead costs such as electricity bills and building maintenance costs are also counted as overhead costs.
- Acquisition cost: These are the costs of procuring goods and services, such as purchase costs, transportation costs, etc.
- Operating expenses: Operational costs for a project include all expenses for personnel and training, as well as regular maintenance, licensing, and support.
- Miscellaneous expenses: Surveys/studies, trainings, conferences, workshops or data that support your project and allow you to achieve the best results fall into this category.
Importance of accurate project budget:
Suppose you have created a project budget and submitted a quote without fully researching the tasks in various phases. As a result, as the project progresses, you will find that you will incur more costs than originally anticipated, leading to budget overruns and later lower profit margins.
Poor budgeting can affect profitability and even derail a project. First, it is the engine that drives project funding. The numbers help stakeholders pinpoint how much money they need at each stage and ultimately calculate their potential ROI. Then, during the execution phase, a well-planned budget serves as the basis for comparing spending over the project cycle. It also helps administrators proactively take corrective action in the event of deviations.
Third, the project budget is a comprehensive statement of all costs incurred during the project.
A step-by-step guide on how to plan a project budget successfully:
- Use previous project history and lessons learned reports: Researching past projects and their budgets is a great way to get a head start on new project budgets. You can also review lessons learned reports to learn from their successes and failures. Work scheduling app or resource management software provides a clear path leading to more accurate estimates, and you can also see how they have responded to change and managed budgets in past.
- Define the scope of your project: The project manager should be clear about the client's expectations and the end goal of the project before creating the project plan. Once the scope is clear, you should start defining the schedule, deliverables, etc. using a work scheduling app or resource scheduling software. For example, the scope of an IT project is designing a new customer website. Therefore, we need human resources such as UX/UI developers, architects, testing engineers, business analysts, etc. Once you understand your end goal, you can get a head start by defining the scope, deliverables, timeline, and more.
- Create a work distribution plan to estimate costs and resources: What's the best way to assign costs to each task? This is the first question that comes to mind when creating a budget. The ideal way is to create a work breakdown structure (WBS) for your project. This detailed task description helps project managers estimate the cost of each project phase. After creating your WBS, you can assign resources to each task and estimate their number and cost. From there, it becomes much easier to estimate the costs requirements to complete the project.
- Keep your budget dynamic with emergency funds: According to many project management experts, it's beneficial to maintain an extra budget of 8-10% to address budget shortfalls. Of course, we can never be 100% sure of the final estimate. Project changes may require budget revisions. Therefore, adding contingency funds will ensure that the project stays within budget and that the estimate is closer to the final cost. In addition, completing a project with minimal strain on the contingency reserve helps build a strong reputation as the project benefits from being under budget.
- Use Expert Opinion: Another important step in developing a project budget is enlisting the help of people with relevant expertise and knowledge, such as subject matter experts, other project managers, or subject matter experts. Plus, connecting with others who have worked on similar projects and created budgets can help you stay on track and avoid unnecessary pitfalls. Finally, submit the budget and story to stakeholders for approval.