Project Budget

What is Project Budget?

The project budget is prepared for a specific project for a particular period of time to achieve a specific result. It is prepared with the objective of tracking the actual cost of the budgeted cost. Furthermore, the comparison and variance analysis help our understanding of what could have been better.

It provides a fair estimate of how much the project will cost. By and large project budget helps in cost-benefit analysis. While implementing huge projects, it is better to check the feasibility of the project. The project budget checks the feasibility of the project. It promotes future planning. It is also known as the program budget.

Process to Create a Project Budget

The team of the Project budget consists of a sponsor of the project, the project manager, and the team.

Step I) The preparation team shall check on the annual budget prepared initially. This is the starting point. Moreover, also refer to the budgetary and actual information for similar projects completed in the past.

Step II) The project manager shall identify all the costs associated with the project tasks. The previous period cost and the prevailing market price are considered to derive the raw material cost. In the same way, labor cost arrives from the number of hours required and the wage rate per hour. Operating costs such as customer support, software license, and advertising costs are to be considered.

Other project management costs, staff hiring costs, 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 on Project Budget

Experts Team

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 the 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. Indeed, it is a good start for the preparation of the budget. You can make improvements on the lessons learned from the previous budget.

Share with Team

Once the budget is prepared, it should be shared with the entire top-level management team to provide the input. Moreover, it also helps in confirming the accuracy of the budget.


If there are changes in the budget and changes approved by the management or change control team, the budget can be modified. Unquestionably, this flexibility helps in revising the baseline or budgeted cost.

Real-time Update

It is advisable to update the budget on a real-time basis, 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 that preparing a work schedule can help track the resources. It includes time for employees, raw materials, and overheads. 

Project Budget

An Illustration of Project Budget

Project Management Template

Brief Project Notes

  1. The project is divided into three subtasks.
  2. The figures are for illustration purposes only.
  3. Other cost includes the traveling cost, project preparation cost, and other such costs.
  4. The total project cost is USD 179,210.

Advantages of Project Budget

Better Planning

A project budget is an important tool for project planning. It helps in the better execution of the project. It indicates the available resources and how to utilize those resources effectively. The project budget is the financial roadmap of any organization.


Sometimes the initially allocated proportion of finance is not sufficient to complete the project. The project budget shall help prioritize which part of the budget is important and requires completion on an urgent basis.

Handy Management Tool

At any time, the management uses it to verify that the project team is achieving the targets as per the budget. It can monitor the deviation easily in detail. With this in mind, the top management directs the subordinates to act accordingly.

Also, read Budgeting in Project Management

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 to achieve overall success.

Difficulty in Evaluation

If the government or not-for-profit organization implements the project and there are no monetary returns, it may not be easy to evaluate.

Quiz on Project Budget

This quiz will help you to take a quick test of what you have read here.

Sanjay Borad

Sanjay Bulaki Borad

MBA-Finance, CMA, CS, Insolvency Professional, B'Com

Sanjay Borad, Founder of eFinanceManagement, is a Management Consultant with 7 years of MNC experience and 11 years in Consultancy. He caters to clients with turnovers from 200 Million to 12,000 Million, including listed entities, and has vast industry experience in over 20 sectors. Additionally, he serves as a visiting faculty for Finance and Costing in MBA Colleges and CA, CMA Coaching Classes.

1 thought on “Project Budget”

  1. Good lesson learned after reading the above articles, as i had worked on many construction projects as a supervisor an encounter many problems on the finance of project due to the project management not budgeting well missing some of the processes stated above.


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