How to Create a Project Budget and Cost: The Ultimate Guide
Every project, no matter how big or small, involves costs. It’s very rare to have endless piles of money at the ready, so having a planned budget for a project is a must. As the project manager, you’ll be accountable for sticking to the budget, so you need to be sure it’s right. If you underestimate the budget, you’ll end up missing milestones, being under-staffed, and having to do the walk of shame to the finance department to ask for more money. If you over-call it, the project might not even get off the ground. So, how do you get project budgeting right?
What is a project budget?
A project budget is a financial plan detailing how you intend to pay for the project. It can be a simple to read excel spreadsheet or a clear in-person process that includes a series of meetings and with stakeholders and suppliers. What are the different types of project budgets? The simplest way to explain a project budget is by dividing the project into two parts, the budget itself and the milestone dates. The budget covers all the costs for the project (materials, travel, supplies, etc.) and includes the costs associated with the milestones for the project. This means that it gives an idea of the total costs for the project – the budget. The milestones are the date by which all the tasks for the project should be done – this includes any communication, meetings, planning, etc.
Why create a project budget?
The goal is to get a solid understanding of the project costs. It can be pretty easy to guess, especially if you’re not a cost-conscious individual, but there are a few areas you should be aware of to save time and money: What do you need from your contractor? Do you need subcontractors or a supplier? What services will they provide? Is it all straightforward tasks? Or will you need to involve the architect? Are you working with subcontractors or suppliers, as well? Is there a possibility of saving money with little paperwork? Do you have enough internal resources in place to help with the project? Do you need subcontractors or a supplier? What services will they provide? Is it all straightforward tasks? Or will you need to involve the architect?
How to create a project budget
Project budgets are unique in that they aren’t just a document to be printed out and read. It’s a living document that is constantly being reviewed and tweaked. On top of that, budgets are highly subjective. This makes it challenging to use as a “rule of thumb.” But, there are ways to get budgeting wrong and still get it right. This post contains affiliate links. Click here to see my full disclosure policy. Why is it important to get budgeting right? When you’re trying to get a project off the ground, there are a lot of moving parts: the actual project, the contractors, the customers, the budget, the timeline, the vendors, the budget management system, etc. Without a budget, it’s easy to be overwhelmed.
Checklist for creating your project budget
Project budget isn’t all or nothing – most budgets only need to be in the ballpark. To determine if your budget is right, you need to do a few key things: Get a feel for your cost drivers Most project managers work within a cost envelope, or set budget. The traditional goal for a budget is to balance input costs against output, or gross margin. Each cost driver should have a corresponding output. A cost driver might be personnel, raw materials, equipment, etc. For instance, a cost driver for personnel might be the number of people who are on the project versus the number of people who are needed to actually implement the project.
Project goal and purpose
The basic foundation of budgeting is to identify your project goal and purpose. Goal is the beginning of the project: what you want to achieve from it. For instance, with social media marketing, your goal might be to increase the conversion rate by X percent, or simply to have more people sign up to your newsletter. Purpose is the why behind the goal: what you’re trying to achieve in your project, based on the goal you’ve chosen. For example, if you want to increase your conversions, the purpose would be to have more emails from your newsletter. Both goals and purposes should be communicated to stakeholders and budget holders at the beginning of the project. Budgeting based on budget vs. ROI Let’s say that your ultimate goal is to increase conversions.
Team, resources, and timeline
Before you start to put together the budget, you need to figure out what the scope of work is, along with the resources needed to achieve it. This includes all the people (co-workers, freelancers) you’ll need to bring on board. Next, take into account the timeline. For example, if the work has a project deadline of three months, a five-man team should be enough. However, if the work needs to be finished in six months, then having a seven-man team is definitely the way to go. When you have both the scope and timeline, you can come up with a realistic budget for the project. Then you can identify who’s going to provide what resource (freelancers, team members, etc.), and how much it will cost to bring on board. Once you have this budget, you can divide it up accordingly.
To accurately predict the budget, it’s important to know the exact costs of the activities. Every activity will cost something, whether it’s staff time, materials, software, or materials and components. If you have additional activities (such as data entry or organizing inventory), you should also figure in these additional costs. It’s important to know how much these extra costs will add to the budget. A typical project budget is comprised of: • Actual money (sales, royalties, product costs, etc.) • Total hours • Base budget (Estimated) • Actual hours (budgeted for) • Outlays (spent) • Others (payable out) Even though all the above pieces of information are important, you should be aware of the following: • Factor in all the unexpected things. • Forget about the equipment.
Before you even begin your cost estimate for the project, figure out what you expect the project to cost in total. This isn’t the number you’ll be basing your final number on, so keep it simple. Let’s say the project has to be a $1 million dollar project. Instead of going to the bank and borrowing the money to do it, let’s say you want to borrow $1 million and do the project for $850,000. If you took out a small personal loan (and we recommend that), make sure that you take care of all of the interest/penalty charges before estimating the cost. If you take out a 10 year loan, you’ll be charged interest from the day you take it out until the day you pay it off, and that’s 10 years of interest.
Putting it all together
The best way to make sure your project budget is actually working for you is to have it done before you even start a project. It doesn’t matter if you’re hiring a designer or a software developer, you need a project budget. It can also be helpful to keep a folder of project costs with you so you can visually compare them from task to task. Finally, you’ll need to keep an eye on things so you’re sure everything is flowing smoothly. For example, if you’re implementing a few updates at the same time as you’re redesigning a website, that’s fine. However, don’t try to add another update halfway through the redesign. But how do you get a project budget right? We’ve put together the ultimate guide to getting your project budget right so you can spend more time doing the things you want to do.
Creating a budget has been a tough one for me. But hopefully, I’ve inspired you to try it out for yourself! There are lots of books available that are intended for project budgets, but I’ve compiled a list of my own recommendations for those of you who don’t have the time to read them. I hope you have enjoyed this article. If you’d like to see more, please like and follow.