How do you create and control a project budget at the implementation stage?

It’s important to understand that there’s no one-size-fits-all approach to creating a project budget. The process is highly adaptable, depending on the project type, size, and resource utilization. Let’s explore two project types and how you can effectively create and control a project budget, knowing that the process can be tailored to your needs.

R&D projects, innovation projects

We very often carry out such projects using the Stage-Gate methodology. This methodology is characterized by the project being initially divided into phases. Then, after each phase, there is a decision gate (the so-called Gate Go, no Go) where we decide whether to continue the project or to discontinue it. R&D projects are characterized by the fact that when starting a project, several things are unknown. As time goes by, the situation becomes more apparent. We know more and more, which should be reflected in the project budget continuously. What does this mean in practice? Well, at the beginning of an R&D project, we should plan Phase 1 of the project in quite some detail, while for the other Phases, we should only create estimated budgets. Of course, everything we already know at the beginning of the project should be reflected in the plan. When the project reaches the decision gate ending Phase 1, the Project Manager should develop a detailed budget for Phase 2 and adjust the budgets for the subsequent Phases with the knowledge available. The Steering Committee authorizes at the time of Gat 1 to spend only funds relating to Phase 2. The situation repeats itself analogously when the project reaches Gat 2.

Organisational and process improvement projects

Many companies plan an initial budget estimate that Is later refined during the project in organizational or process improvement projects. A Project Charter is often developed before a decision is made to implement the project. Those deciding to implement the project need at least an estimate of its budget. There is no need to create detailed budgets because we can spend much work on this, and the decision to launch will not be made. In practice, it is worth focusing on the most critical, resource-intensive items and estimating them. If a favorable decision is made for such a project, this budget should be appropriately detailed at the planning stage. For example, in the estimated budget, we can include the item “business trips” and estimate their cost at PLN 200 thousand. We can divide this item into domestic and foreign trips in the detailed budget. The level of detail should be as much as our knowledge at this stage allows.

Budget control during project implementation

The following illustration shows the budget situation of a project during implementation. This illustration is taken from the dedicated project management system FlexiProject.

When the whole plan for this particular project was approved, the budget plan was also approved – this is in the ‘Plan’ column. All costs already incurred during the project and all likely expenses that we know we will incur between now and the end of the project are in the ‘Amount’ column. If we compare the Amount column with the Plan column, we will see the ‘Deviation’ that we can expect at the end of the project.

The illustration below shows a breakdown of the project costs over time.

During the project, supporting documents for expenditure appear and are recorded in the system—these are shown below for the selected budget line.

As new expenses arise, the Project Manager gains more precise knowledge of what other costs can be expected during the project. The Project Manager should also record any new information in the Forecast line. This way, we will always have up-to-date information about the project’s budget. Virtually every company pays much attention to cost management. The same should apply to project cost budgets, as they contribute to the company’s overall profitability, which every company strives to maximize.