How do you develop a project budget?

The Project Charter, schedule, communication plan, and budget are the most common parts of a project plan. The project budget is important because it often directly affects the company’s profit in a given period. Also, the people deciding to launch the project need to know what financial investment they are deciding on.

Developing a project budget plan

Before they start detailed planning, many companies need to describe the planned project’s framework to decide to launch it. For this purpose, a Project Charter is often filled out, part of which is an estimate of the cost of the planned project, as well as the essential elements of the so-called Business Case of the project. In the Project Charter, we often provide a single figure for the sum of planned costs or only “thick” budget items. An example of a Project Charter from the project management software FlexiProject showing the planned project budget is shown in the illustration below:

Developing the project budget step-by-step

Step 1: Identify cost items while working on the project schedule

As we identify project phases and task milestones, we should think about the potential costs associated with implementing these elements all the time. This is about such cost items that directly affect the implementation of specific schedule elements. Here, the FlexiProject project management system offers functionality to add costs directly from the schedule sentence, as shown in the following illustration:

Working in this way, after developing the project schedule, we will already have identified several cost items that make up the later project budget. This approach is valuable in that it affects the accuracy of the budget and minimizes the likelihood that some costs will be forgotten altogether. If we tie expenses to specific tasks in this way, then a dollar $ stamp will appear next to each task, which will communicate to us that an expense has been identified for that task:

Step 2: Develop a target budget

Now, we can create a final budget. Such a budget is worth dividing into large cost categories and subcategories, and specific expenses should be planned only within them. The project budget plan developed in this way is shown in the following illustration.

By creating a detailed project budget, we can develop details for the upcoming stages of the projects and complete the subsequent ones as the project continues when we have more information available. Nevertheless, every effort should be made to make the project budget as precise as possible.

The illustration above shows a column where we enter the expense date. In many companies, this is needed because it affects the company’s cash flow, and often, such information is required by the company’s finance department. Here, we also see a paperclip mark next to some dates. It means that a given expense, precisely the date it was incurred, has been dynamically linked to the completion date of a specific project task. In practice, this means that if the date of the task changes, then the system will automatically correct the expense date in the budget. The distribution of project expenses over time is shown below:

Monitoring the implementation of the budget during the project

We must systematically monitor the expenses incurred during the project and relate them to the approved plan. In practice, every expense incurred should be related to a previously planned item—as long as we have anticipated this beforehand. Many Project Managers do this manually, but it is also possible to integrate the project management system with the company’s FK system, and this activity will work automatically. An example of a project budget showing deviations from the assumed plan is shown in the following illustration:

Often, however, a company’s Board of Directors or Steering Committee wants to avoid seeing detailed project budgets but only wants to know how the project is going regarding budget execution and where there are significant deviations. For this purpose, the FlexiProject system allows you to view the budget situation of multiple projects in the budget tab included in the project portfolio. Such a situation is presented in the following illustration:

What’s more- for each project, you can work out its status on a dedicated so-called One Pager, and here, the company’s management will see the budget situation of a specific project in a very concise and concrete form, along with the comments of the project manager.

If this information presented above is insufficient, then you can create several detailed reports in the system that show very detailed financial information:

Precision in project budgeting: key to success

Developing a project budget is not difficult but requires accuracy and meticulousness. At each stage, the budget should reflect the project team’s current knowledge of the costs incurred. It is also necessary to systematically analyze and monitor the project budget status to catch potential risks as soon as possible.