How to Write a Project Budget (Importance and Steps)
By Indeed Editorial Team
Updated June 16, 2022 | Published January 3, 2022
Updated June 16, 2022
Published January 3, 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Project managers are responsible for preparing the budget for a project, which includes monitoring how their team uses financial resources to complete a project. Project management budgets are financial documents that detail the expenses you require to deliver the project. Understanding how to create an appropriate project management budget allows you to determine what the team needs to deliver a high-quality project on time. In this article, we explain what a project budget is, discuss why it's important, and examine the steps to follow when preparing one, including tips to consider.
What is a project budget?
A project budget refers to a document that specifies how you allocate money to implement the activities described in the proposal. It's the combined costs of all activities, tasks, and milestones that you intend the project to fulfill. It's the money you require to finish the project, which stakeholders involved in the project can approve. The budget guides you step-by-step throughout the project phases. You can also change and adapt the budget to what happens during the project itself. The larger and more complex the project is, the more costly, in terms of time and money, the budget requires.
Why is it important to create a project management budget?
A budget is what determines the project's funding. It communicates to the involved stakeholders and sponsors how much money the team requires and where you plan to spend it. A budget can help you control your project costs. It's a plan that acts as a standard to measure your performance, as you typically collect the actual costs once the projects start or throughout the process. It can also measure your progress according to your project management budget's time frame and milestones.
The project budget can also help you achieve your milestones. A reasonable budget also accounts for potential problems, so if they arise during the progress of the project, you can handle them. Budget management for projects is important because it prevents unnecessary costs and allows you to allocate the correct amount of the budget to each corresponding need.
How to prepare a project management budget
A project management budget is an integral part of the planning phase of a project. Here are the steps you can follow to create a successful project management budget:
1. Identify the project scope
The first step in allocating costs is to be clear on the project scope, timelines, and deliverables. An excellent approach to help in this process is to prepare a work breakdown structure (WBS) for the project. This structure allows you to detail everything involved in delivering the project according to the stated specifics. It becomes easier from this point to assess and allocate the resources for the budgeting process.
2. Determine the resources
The next step is to determine the resources required to complete the project. You can consider these factors when determining the resources for a project:
Staffing: This might be the most expensive cost in your budget but is highly important. You can determine how many additional members your team needs, how long you need these additional staff members, and consider the payment structure you can employ for the project.
Equipment: These are different depending on the needs of the specific project and can be in the form of machinery for construction or project management software for the period of life of the project.
Sales and marketing: Depending on the nature of your project, your project can involve sales and marketing costs. Factor in these expenses if you decide your project requires them.
Training: Your project requirements can involve some forms of organizational change management. These changes sometimes require the training of staff and team members and you can estimate the costs of the training by how big or drastic the change is.
Miscellaneous items: This factor is solely dependent on the details of your project and its requirements. If your project involves needs like collaboration and travelling, you can account for your project management budget costs.
3. Allocate amounts
You can determine the amounts of each resource you need for the project requirements. You can read through the list of resources you have prepared to start evaluating the cost for each one. Having a project history you can rely on is also helpful. It's best to investigate other similar projects and use their costs as a guideline. You can do this through the internet or by asking other team members that have had a history with these types of projects.
This step is crucial for staffing costs. It's best to draft a spreadsheet of average salaries for employees and estimate these costs to add to your budget.
4. Make your budget
Once you have completed the preceding steps, draft your estimates in a spreadsheet or any other similar project management software your company uses. Remember to include contingency funds when preparing your budget. You can also add a timeline for the budget. It helps you identify exactly when costs are likely to arise.
It's best to review the estimates with other team members to get their feedback and determine how long you expect it to take them to complete their tasks. Feedback can help you to notice other elements you may have overlooked or errors you may have made. It's better to do this proofreading process before you submit the budget to the stakeholders for approval.
5. Get approvals and implement
When you submit your project management budget to the stakeholders, it's best to justify the items and estimates you stated. Once stakeholders approve the budget and timeline, you can allocate resources and implement each stage or the project. It's best to monitor the project, using the budget as a guideline, so that costs don't exceed the budget and team members are reaching milestones at the times you stated in the budget.
Tips for best practices
Here are some tips that can help the process of creating your project management budget:
Reference previous budgets. Use previous similar project management budgets to determine budgets and items to consider as it gives you a better perspective when starting the process for your budget.
Consult experts. It's helpful to meet experts related to your field, as they may have done projects like yours, and can advise you on possible setbacks and considerations.
Review the budget's accuracy. Confirm the accuracy of the numbers and language used. You can cross-check your work with team members to ensure the budget you present is accurate and comprehensive.
Create a standard. Use this budget as the standard for your project and ensure all the costs, milestones, and activities align with what you have accounted for in the budget.
Update the budget regularly. If there have been any changes in budget or necessary factors, add them to the project immediately so that you can still use that budget to monitor the project's progress.
What to consider when creating a project management budget
There are certain factors to consider before assembling the budget. These include:
Your budget consists of different types of costs and expenses, like direct and indirect costs, capital expenditures and operating expenses, and costs concerning project deliverables. The budget doesn't require you to make exact and accurate costs as their estimates. The numbers are likely to change as you begin the project. When preparing the estimations, be realistic and as precise as possible about the resource needs for the project. Consider over-estimating when you're unsure.
Project budget management ensures your project complies with your decided budget. You can notice if costs start to exceed the decided estimates before the project finishes. Budget monitoring is crucial for a project to be able to enforce accountability related to spending. You can also monitor to identify if the project needs more money added to the budget so that the work doesn't stop. Decide when you want to present budget monitoring reports to your team.
It's important to prepare for any problems that may happen when completing the project. You can have the most detailed estimates of costs and resources, but unexpected delays and problems can still make you review your budget and make revisions and amendments. It helps to prepare an emergency fund for these problems. A good rule is to set 10% of the total budget for possible contingencies. If there are no contingencies to solve during the project, you can complete the project under budget.
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