How to Create a Project Budget That Works
Every successful services business has a deep understanding of project budgets and what it takes to create an accurate budget and stay on target. While this may seem straightforward there are many complicating factors that must be taken into account regarding a project’s budget and keeping it on track. Success for a company demands a well-rounded knowledge of how to create a project budget that is realistic, achievable, and ultimately in service of healthy profit margins.
The following steps will help project managers and financial teams make tweaks to their processes to create project budgets that work.
Creating Cost Estimates
Budgets depend on understanding the many different types of expenses that can occur during a project and effectively planning for them before each unique project begins. Cost estimates help companies budget out each project and include direct costs, indirect costs, operating expenses, resource wages, and more. While these estimates may not directly line up with actual costs by the project’s end, working hard to budget realistically is key, which can be improved through comparing estimated and actual costs at a project’s end.
Identifying Project Scope
The scope of your project is critical to both defining and maintaining the costs of work. A project scope includes timelines, due dates, deliverables, and client expectations, and must be agreed upon with the client before any work begins to ensure the project does not balloon past the original intended scope. This complete and finalized scope will help your project manager break down all needed tasks that will be budgeted for.
Defining Your Resources
Depending on its scope, a project may touch on many different aspects of a business, requiring a wide variety of team members to utilize their skills to successfully complete the project. After a project’s scope has been defined, project managers will need to determine what team members will be needed during the project, if new team members will need to be onboarded or trained for the project, what types of equipment are required, and the amount of hours each resource will need to work. When combined with their hourly rates or salary, your resource costs will be defined.
Having resources and tasks in place allows companies to evaluate and effectively assign costs to the work that will need to be done. While determining the exact costs may be difficult, reviewing budgets for past projects, similar tasks, and the performances of resources will help a business make more effective financial decisions. Staffing can make a major difference in total budget and how well a project may perform.
Using Effective Budget Monitoring
It’s not enough to simply create a budget and build a project aligned with estimated financial costs, a business needs to monitor project budgets to ensure everything stays on track. With the right project management solution, managers can be alerted if work begins to go over budget and over schedule. With this information, managers can adjust projects appropriately to stay profitable and keep clients aware of changes.
Sample Project Budget
Make sure to include the following elements when creating a project budget at your organization.
- Task Category
- Estimated Labor Time
- Wage Estimates
- Material Costs
- Full Task Breakdown
- Line Items (i.e. travel expenses)
- Fixed Item Costs
- Miscellaneous Costs
- Total Labor Time
- Overall Total Cost Estimate
- Planned vs Actual Cost Comparison
Having these elements in place within your budget will keep your financial department and project managers better aware of costs before beginning work and will give them greater insight into how their tasks are tracking financially. Greater awareness and the ability to adjust mid-project are key components in staying on budget, no matter how work may continue to change over time.
Creating a More Profitable Business
Building and continuously improving your project budgets is just the first step to improving your company’s profitability over the long term. Learn more about increasing the profitability of your company through our ebook, “The Five Steps to More Profitable Projects.”