Do you want to see a project budget example? A real one. The one that comes from practical experience? Then, you are in the right place!
Project Budget is a tool that calculates the total funds authorized to execute the project. Project Budget Template includes planned expenses for all project activities, including wages, materials, fees, risk reserves, etc. Project Budget is created based on Activities List.
A Mindset That Helps Creating an Accurate Project Budget
We’ll review the project budget example in just a minute. Before that, I want you to have a correct mindset.
When you think about the project budget, what comes to your mind?
I need accurate estimates.
I need some ninja technique that will magically do the work.
You are focusing on the wrong side of the problem!
To create an accurate project budget, you need to identify 100% of project work.
That’s your ultimate goal. Why?
According to Harvard Business Review:
“On average, projects go over budget by 27 percent of their intended cost.
You don’t want to get into that statistics, don’t you?
So, here’s what you need to know:
Step 1: Create Project Charter
So ideally you start with the Project Charter.
Based on the information in the charter, you develop project requirements. You identify only the requirements that support reaching project objectives.
Step 2: Create Project Scope Statement
Then you need to write a Project Scope Statement.
You need to get approval on what you need to produce at the end of the project. By the way, I have a separate video on the Project Scope Statement. Do watch it as well.
You do all this prior work to ensure that you don’t waste lots of efforts on the next step. You clients neet to approve the high-level scope of the project. You’ll put a lot of efforts in planning the project. So…
You do want to ensure that you’ll plan for the work that clients want.
Here’s another secret:
Step 3: Create a Work Breakdown Structure
Yes, WBS takes a lot of effort of the whole project team and subject matter experts that you can reach. You need to decompose the deliverables from the Project Scope Statement into smaller pieces – deliverables.
You need to describe all the tangible parts (deliverable and work packages) you need to create to produce the final product, service, or result.
And then you break them down even further into activities and actual tasks.
Without all this effort to identify the work that needs to be done, you can’t produce an accurate project budget. So, I strongly recommend you to check my guide on the Work Breakdown Structure.
Moreover, in the project budget example below, we’ll be using work packages and deliverables to sum up costs.
Step 4: Create a List of Activities
I get it!
You can guess and make the high-level estimation that has a bullet-proof buffer.
Also, you can try to compare your project with similar projects done in your company.
But here’s the truth:
Step 5: Identify Required Resource and Material
One more step before you can proceed to calculating actual costs.
You need to identify what kind of human resources (read people) and materials you need to perform all of these tasks.
Do you need a senior Android software engineer? Or a junior level will handle it? Do you need a carpenter to finish the work package? And so on.
But there is a catch:
Even if you do everything I described just now, you will get over budget in the long run.
Can you guess why?
Step 6: Perform Risk Management Activities
Yes, you also need to include Risk Management expenses!
Risk Management is not free of charge. In all it’s aspects, it takes time and money to implement.
Moreover, it should be a transparent part of your project:
All your risk management activities should transform into specific tasks related to a deliverable. Or it should be a risk resource assigned to a task, work package, or a deliverable again.
Project Budget Example
Now we are ready for a project budget example itself.
So now you can take all the tasks at the lowest level of the composition and put them into a spreadsheet for estimation. But if you have an integrated project management application, do keep all the project information in one place!
The spreadsheet may look like this:
You do need to adjust it to the realities of your company and industry.
Here’s a short list of possible expenses that you can think about:
- Team Building Activities
- Employee Incentive
- Outsourced Labor
- Travel Expenses
- Risk Reserves
- Team Members’ Training
- Consulting Fees
- Contracted Services
- Office Rent
- Computer Lease
- Repairs & Maintenance
- Office Supplies
- General Insurance
- Software Licenses
- Marketing Materials
Project Budget Excel Template
Like many other templates and supporting materials you can get my Project Budget Template in the library for free.
What to Include in Your Project Budget Excel?
I’ll give you that.
If you don’t have an integrated Project Management Software – a spreadsheet is the best alternative. So, go for Excel, Google Sheet, or Numbers
The main column lists all the activities and risk resources.
I recommend you to keep the Work Breakdown Structure organization. This way you will quickly sum up all the costs to the higher level.
Next, you have labor columns with efforts required to finish the tasks and rates.
After that you can put materials.
One column for the amount and one for the cost per unit. Again you need to put some thought into these columns to group the most common expenses here.
Your spreadsheet may contain entities for traveling, rent of space or equipment, or other uncategorized expenses.
Likewise, for each category of planned expenses you may want to add “Actual Cost.” It’ll help you control costs by category.
Where do You Get Costs to Put into the Project Budget?
Here’s the ground rule:
People that will perform the work should participate in the process. They should provide the estimates on the duration, efforts, and materials required, and any other additional costs.
If you don’t have a project management team yet, you need to find subject matter experts who have the expertise in similar projects. And if your company doesn’t have such experts, I would recommend you to postpone the development of the scope and budget until you acquire these people.
You should communicate it to your clients. It’s a serious feasibility risk. You, as a project manager, can’t provide specific estimates yourself.
How to Find Rates for People’s Labor
As for the rates, your company should have a list of possible prices for labor you use in-house on a regular basis. In addition to that, there’s a list of vendors with their price lists.
So the first step is always to ask your leadership.
Otherwise, you need to research the market to find out average rates for the required roles. Also, you may need to look into the freelancers market to assess the possible range of rates. You need to make an assumption here.
Keep in mind that rates that you use here will directly impact the hiring process. If you put it below the market average, it may take more time to fill in the required position.
Where do You Get a Price List for Materials and Equipment?
Likewise, a company should have a list of trusted vendors. Your first point of contact is a Procurement Manager.
If you can’t find such a list you need to create it.
There’s a potential risk to the cost of materials and equipment you need to be aware of.
You estimate them today but you may actually acquire them in six or ten months from now. So you should be ready for the price fluctuations.
It might be a significant hit if you need a large amount of materials.
How to Budget Variable Costs
Also, there are variable costs like electricity and phone bills, file storage space on a server, and so on.
The idea is simple:
You need to budget enough money to cover the costs.
Historical information and other Project Manager can help here.
Practical Tips to Make Project Budget Accurate
Okay, what else can you do to improve the accuracy of your budget?
Don’t Forget to Provide Funding Requirements
Don’t expect that you’ll get the whole project budget on the day one.
Most likely it will be funded in instalments.
You need to ensure that each moment of time you have enough cash to fund the project. You should pay close attention to moments when you need to purchase materials or pay vendors.
Don’t put your project on halt just because next instalment comes in two weeks.
If you have constraints in the cash flow – you need to consider it for the whole project plan.
Collect Historical Data From Your Colleagues
Your company may not have a formal archive. But other project managers have tons of information on their computers and in their heads.
So don’t miss an opportunity, and ask if they did similar projects.
You may identify additional expenses that you overlooked. These project managers may provide you with lessons learned, share their experience, and tips.
- Materials need storage. You need to rent it.
- They should be delivered on time to the site. Transportation expenses.
- Machinery and tools may break. They need some storage space as well.
- Certain applications require licenses. Commercial use with big teams may be much more expensive than a single license.
Remember every project has a unique set of additional expenses.
Don’t Forget to Include Reserves for Unknown Risks
There is one more secret ingredient in the accurate project budget. It is called Management Reserves. It’s the reserves of money for unexpected risks and events.
Usually it’s additional 5, 10, or 15% from the Cost Baseline.
But keep in mind that you don’t have direct access to these reserves. You should get approval from clients or the steering committee to use them.
So together all of these comprises your project budget.
Okay now, here is a harsh truth from the real world.
Be Transparent with Accuracy of the Provide Project Budget
Sometimes clients and your leadership will ask you to provide a project budget when you don’t have a project team. Likewise, they may not give you enough time to do all the preparations with due diligence.
You just need to provide them a number (total project budget).
So if you are not able to convince stakeholders to do it in the right way, you need to safeguard yourself and the project team.
Do provide higher-level and rough estimates. It means your budget should be on the higher end of the worst-case scenario.
(Especially for deliverables that you have little certainty about.)
Yes, sometimes it means that you need to double, triple estimates but to be on the ethical and professional side, your communications about the accuracy of these estimates should be transparent.
You should provide an option to specify the estimates later and give an accurate budget.
Don’t be Afraid of Project Budget Process
Here’s the truth:
All companies have a different approach to creating Project Budgets.
Most companies have processes and workflows that you need to follow. Likewise, they have ways to check and control your estimates.
You won’t be left alone.
But as you can see, actual process of creating a budget is straightforward. However, you need to put a lot of project management efforts before it.
So, focus more on identifying project scope. It will lead to accurate estimates of duration and costs.
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