A project budget is the total cost of all tasks, activities, and materials associated with a client's project.
A clearly defined project budget helps you track estimated costs versus actual costs. And you can use it to monitor project costs and reduce the likelihood of running out of resources or going over budget.
How to create a project budget in 7 steps?
1. Determine the project scope and client requirements
The first step in managing a project budget is to know what needs to be done to make it successful.
It is important to resolve this issue at the project inception stage. And remember that you can determine the project scope clearly when you have all the requirements.
Determining the project scope will give you a lot of information that you need, such as:
- what resources are needed to complete the project;
- what result you will get at the end;
- what tasks need to be completed;
- how long the project will take, its timeline;
- everything the client requires.
2. Break the project into stages and tasks
Breaking a project down into stages and tasks is an important part of the project management process and can have a significant impact on the project budget.
So, after you've gathered all the project requirements and determined the project scope, you can break the project down into manageable milestones and tasks. This will help you to accurately estimate the project budget, anticipate risks, plan resources, and monitor project work.
3. Make a list of expenses
After visualizing all the stages of the project, you can move on to the next step – creating a list of all the costs associated with the project. These can include labor costs, equipment, materials, contractor services, equipment depreciation, and more. Consider all possible expenses, even those that may seem small.
4. Estimate the costs
For each item on the cost list, estimate how much it will cost to fulfill it. Use various sources and information from experts in the field to make the estimate as accurate as possible.
It is also important to distribute the costs over time. Determine when exactly these costs will be required during the project. This will help you create a funding schedule and correctly allocate the budget to phases or months.
5. Consider possible risks
Add reserves and consider risks. Typically, reserves are added to the budget for unforeseen expenses or changes in project requirements. Also assess the risks and consider the possible costs associated with their occurrence.
6. Get approval from the client
It's time for the last step in the project budgeting process. By now, you should have a project budget that you're happy with. So it's time to send it to the client for approval.
If you're creating a project budget as part of a project proposal, don't forget to include the following items:
- Expected deliverables;
- Priorities;
- Constraints (list any constraints that the client has expressed or that have been agreed upon jointly);
- Deliverables (list the deliverables that will be provided as part of the proposed solution);
- Achieving the expected results (describe how your proposed solution meets the expected results);
- Working with constraints (describe how your proposed solution works around constraints).
7. Monitor the project budget
Once the project has started, start monitoring project costs to keep on track with the approved plan.
This usually means monitoring expenses such as:
- Salary costs for the team;
- Time – billable hours and actual costs;
- Your project costs (materials, software, contractor costs, etc.).
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- Project and task management – the entire scope of planned work in one place, after which you can calculate the cost of tasks, hours of work, and assess how well the result paid off.
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These steps will help you create a project budget that will serve as the basis for financial planning and cost control throughout the project.
