Table of Contents
- 1 What is Project Budget?
- 2 The process to create a project budget
- 3 Some expert tips
- 4 An illustration of Project Budget
- 5 Advantages of Project Budget
- 6 Disadvantages of Project Budget
What is Project Budget?
The project budget is prepared for a specific project for a specific period of time to achieve a specific result. The project budget is prepared with the objective to track the actual cost of the budgeted cost. Furthermore, the comparison and variance analysis help our understanding of what could have been better.
The project budget provides a fair estimate of how much the project will cost. By and large project budget helps in cost-benefit analysis. While implementing the huge projects, it is better to check the feasibility of the project. The project budget checks the feasibility of the project. Project budget promotes future planning.
The process to create a project budget
The team of Project budget consists of a sponsor of the project, project manager, and the team.
Step I) The preparation team shall check on the annual budget which is prepared initially. This is the starting point. Moreover, also refer to the budgetary and actual information for the similar projects completed in past.
Step II) The project manager shall identify all the costs associated with the project tasks. In order to derive the raw material cost, previous period cost and the prevailing market price are considered. In the same way, labour cost arrives from the number of hours required and the wage rate per hour. Operating costs such as customer support, software license, advertising costs are to be considered.
Other project management cost, staff hiring cost, training, and travel costs shall be considered.
Step III) Moreover, the project is affected by many unknown factors. The ideal project budget includes provision for uncertain costs. It will help in better planning and does not spoil the profitability of the organization. The contingency percentage shall derive from past projects.
Some expert tips
Undeniably, the best team produces the best results. Accordingly, the team shall consist of experts from the organization. The experts who managed similar projects in past can be a great help. In fact, they can provide valuable inputs.
Use historical data
Particularly, Use historical data for a similar project if available. Certainly, it is a good start for the preparation of the project budget. You can make the improvements on the lessons learned from the previous budget.
Once the budget is prepared, it should be shared with the entire top-level management team to provide the inputs. Moreover, it also helps in confirming the accuracy of the budget.
If there are changes in the budget and if there are changes which are approved by the management or change control team, the budget can be modified. Unquestionably, this flexibility helps in revising the baseline or budgeted cost.
It is advisable to update the budget on a real-time basis, In order to achieve better results.
Get on track
The budget management team shall track the deviation from time to time. As soon as there is a deviation, the project team shall get back on track. Accordingly, it helps to align the budgetary and actual performance. Another key point to note here is the preparation of work schedule can help track the resources. It includes time for employees, raw materials, and overheads.
An illustration of Project Budget
|Project Management Template|
|Project||Labour Cost||Material Cost||Fixed Overheads||Other costs||Total|
|Hours||Rate/ Hour||Total||Units||Rate/ Unit||Total|
|A||B||(A * B)||A||B||(A * B)|
|> Sub task – X||8||10||$ 80||1000||20||$ 20,000||$ 9,000||$ 390||$ 29,470|
|> Sub task – Y||7||20||$ 140||200||20||$ 4,000||$ 3,000||$ 280||$ 7,420|
|> Sub task – Z||5||30||$ 150||10||20||$ 200||$ 1,000||$ 160||$ 1,510|
|> Sub task – M||16||10||$ 160||1400||22||$ 30,800||$ 12,000||$ 480||$ 43,440|
|> Sub task – N||10||20||$ 200||450||22||$ 9,900||$ 5,000||$ 270||$ 15,370|
|> Sub task – O||8||30||$ 240||30||22||$ 660||$ 2,000||$ 160||$ 3,060|
|> Sub task – J||18||10||$ 180||1600||24||$ 38,400||$ 14,000||$ 570||$ 53,150|
|> Sub task – K||15||20||$ 300||600||24||$ 14,400||$ 6,000||$ 360||$ 21,060|
|> Sub task – L||11||30||$ 330||70||24||$ 1,680||$ 2,500||$ 220||$ 4,730|
|Total||$ 1,780||$ 1,20,040||$ 54,500||$ 2,890||$ 179,210|
Brief project notes
- The project is divided into three subtasks.
- The figures are for illustration purpose only.
- Other cost includes the travelling cost, project preparation cost, and other such costs.
- The total project cost is USD 179,210.
Advantages of Project Budget
A project budget is an important tool for project planning. It helps in better execution of the project. It indicates the available resources and how to effectively utilize those resources. The project budget is the financial roadmap of any organization.
Sometimes the initially allocated proportion of finance is not sufficient for the completion of the project. The project budget shall help in prioritizing which part of the budget is important and required to be completed on urgent basis.
Handy Management Tool
At any time, the management uses as a tool for verifying that the project team is achieving the targets as per the budget. The deviation can be easily monitored in detail. With this in mind, the top management directs the subordinates to act accordingly.
Disadvantages of Project Budget
If the project is big, it may so happen that the team may consider one sub-task twice. This is a mistake. Because of the same, the budget is allocated twice.
All the preparer of the project budget meets regularly in order to achieve overall success.
Difficulty in evaluation
In case the project is implemented by the government or not for profit organization and there are no monetary returns, it may be difficult to evaluate.1–3