Every project needs a project budget – an expectation of how much the project will cost. In order to establish the budget, the project manager will evaluate the costs of the work and materials required to complete the project. As part of the budgeting process, the project manager will need to understand the scope of the project and the costs involved.
Understanding the project budget
The project manager needs to know from the outset what funds are available to complete project work and purchase materials. The budget may be set out in two different ways. There might simply be an existing pot of money, and the project will need to be completed within that existing budget. The alternative is that estimates will be made for the cost of the work and a budget created based off those estimates. The project will then need to work within that budget.
The easiest way to get an initial understanding of our how much our project is going to cost – and therefore how much our budget needs to be – is to use a cost breakdown structure (CBS). The CBS breaks down each component part of the project and assigns an estimated cost. When we work from the lowest level upwards, we can add these sums together to produce an estimated total cost for the project. This exercise needs to go hand-in-hand with estimating the cost of the work.
Our budget needs to account for the cost of resources as well as materials. We need to be sure that we can buy the materials required and pay the staff or suppliers to construct the final product. As part of creating our CBS, we must make sure to account for resourcing costs and obtain quotes so that our budget reflects the full estimated costs of our project.
Getting estimates for the project budget
To provide an overview of the costs of the project, from which we can determine our budget, we need to determine estimates for the costs of work and materials.
Quotes can often be obtained from suppliers, and then some contingency may be built in. The project manager might also use estimating techniques such as:
Each of these techniques has different strengths and the project manager will need to decide which is most appropriate for their project.
The purpose of getting estimates is so that we have an accurate picture of how much we are expecting the project to cost. We don’t want to just guess what our budget needs to be. Through a combination of quotes and reliable estimating, we should be able to get a good understanding of the costs of our project. We can then put this information into our CBS to help establish the budget.
Monitoring the project budget
Once we have agreed the budget and the project is underway, we need to monitor the budget. Whilst we hope that everything will come in at or under cost, this is not always the case. We should monitor the project budget carefully to ensure that we remain on track and that the costs do not become excessive.
At a minimum, we should check that our budget is on track when we reach stage gates within our project. These are the major points where we want to make sure that our project is on track. Monitoring the project budget is part of this. We want to make sure that the project is not exceeding the budget, or if it is, to understand why. If the project is exceeding the budget, we might need to take action to rectify issues or review the rest of our project plan.
The budget is a finite resource within our project and so we need to be careful that it is being spent as we predicted. If we run out of money, there may be significant challenges to getting more money to complete the project. Monitoring the budget is crucial to avoid this eventuality.
The project budget defines the expected cost of our project. It is important that we have a good understanding of the components of our budget from the outset. In preparing our budget, we will estimate how much the project is going to cost and aim to achieve our project within these parameters. It is important that we monitor the budget throughout the project life cycle to ensure that we are not overspending. Ultimately, we want to make sure that we accurately estimate our budget at the outset of the project and can then stick to that throughout the project.