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Cash is king, whether you like it or not. The ability to create accurate budgets and keep expenditures under control is critical to project success.
Budgets are usually the most crucial aspect that takes precedence over everything else, and they are frequently the source of friction between agencies and clients.
There’s also a lot of pressure. The cost estimation process can be stressful and frightening; there’s always some guesswork involved, and if you get the project budget wrong, you could be fired as the project manager.
It’s not easy to successfully manage project costs. However, if you adequately estimate and combine it with a well-written statement of work, you can rest assured that your project budget will not let you down.
Continue reading to learn everything you need to know to have your project budget working for you.
What is Project Budget?
A project budget is the total projected cost of conducting each project activity during each phase of the project. It’s critical since it helps set expenditure objectives and is essential for project clearance, guaranteeing assets are allocated on time and performance monitoring.
It is a living document monitored, examined, and updated throughout the project. You can incorporate a project management template to do the same.
Suppliers such as fiberglass cable tray suppliers, are the ideal people to give you estimations for the products and services you’ll be getting.
What is the Purpose of a Project Budget?
The budget for the project is intended to:
- Assist you in making decisions. This could include deciding whether or not to proceed with the project or how much to invest in certain project tasks.
- Inform stakeholders of the amount of money required and when.
- Grant manager a reference point for determining if the project is on track.
Advantages of Efficient Project Budgeting
We all agree that a budget is necessary for any project, but the advantages go far beyond simply knowing how much the project will cost. The following are the advantages of good project budgeting:
- You can readily identify areas that require attention by understanding how much money is available for each project activity.
- Having the correct human resources accessible is one of the most challenging aspects of project management. The project budget can help you figure out exactly what abilities you’ll need and for how long, which is particularly important when employees are working on many projects.
- The budget is a valuable project management tool for determining whether you’re on track to fulfill your objectives.
- It assists in prioritizing activities that can be done within the given resources. This may entail lowering your goals, but you’ll be performing as expected at the very least.
- Encourages future planning and thought.
- Project managers who can offer excellent results while keeping costs under control have a bright future.
Estimating the Budget for a Project
Budgeting is a crucial project management skill that takes practice to perfect. We’ve produced a step-by-step guide that you can use as a checklist to ensure you’ve covered all the bases when it comes to budgeting:
1. Refer to Your Project Scope
The project scope specifies the goals, deliverables, tasks, and dates for the project. You’ll want most of this data to evaluate your expenditure.
2. Define the Resources You’ll Need
Make a list of all the people and items you’ll need to finish the job on time. The list continues on and on: personnel, equipment, training, travel, supplies, leases, subscriptions, and so on.
3. Understand the Resource Rate
Employees who work on the project will be paid at a set rate, with more experienced people costing more but frequently completing things faster and at a higher standard. The project’s materials are also charged at a fee. To complete your budget estimate, you’ll need to know the labor and material charges.
4. Assign budget estimates
Now that you have a list of resources, start giving each one a number. You will require significant research and collaboration. Although each project is unique, here are some estimation strategies to get you started:
If available, look at actual expenses from previous similar projects. Pay special attention to any lessons acquired from earlier initiatives to avoid making the same mistakes.
Because you’re based your estimate on an analogy, or a similar project to the one you and your team are working on, it’s also referred to as “analogous estimating.”
You can sometimes estimate the total cost by looking at unit costs or durations and then scaling the figure to the number of units needed. For example, if building one component takes an hour, building eight will take eight hours.
This is characterized as “parametric estimating” because you’re studying known parameters to produce your estimate.
Consult Subject Matter Experts (SMEs)
Enlist the help of SMEs or project managers from your company or wider professional network.
Where possible, receive fixed costs for project aspects and estimates where the needs are still unknown. Suppliers are the ideal people to give you estimations for the products and services you’ll be getting.
5. Create a Contingency Fund
It’s nearly difficult to know exactly how much everything will cost at the start of a project. If your bills climb, you’ll be equipped if you have an emergency fund. A decent rule of thumb is to set aside 10% of the overall project budget, though this can vary depending on the project.
6. Create the Budget
Compile the estimates into your project management software or budget template to create the budget. Include limits, assumptions, and a timetable in your budget.
7. Obtain Acceptance
Before official approval, share your plan around your team for input to spot faults and omissions. You want your budget to be accurate when submitting it to management or stakeholders. You’ll also need to be able to defend the numbers’ reasoning confidently.
The practice of tracking and monitoring project money is known as project budget management. It is one of the numerous talents required of a project manager.
You can easily recognize if costs begin to exceed forecasts and adapt before the budget is blown by frequently reviewing the budget during the life of a project. You’ll also be aware of any additional budget requirements ahead of time, allowing you to acquire finance without having to wait for further approvals.
It’s critical to utilize the initial project budget as a benchmark against which to measure deviation. You’ll require approval for your adjustments as the project evolves, and then you’ll need to re-baseline your project budget.
You must avoid driving over budget suddenly as a project manager is like cancer. While contingency exists to aid in managing variance, it can only go so far. With rigorous budget tracking, you’ll be able to predict whether a project will go over budget and take action before it happens.