Best Practices to Create a Project Budget!

Whether you're a numbers person or not, being in charge of a budget is usually a big part of a manager's work. It can be a difficult undertaking, and projects might have a variety of expenditures that must all be tracked to ensure that everything stays within budget.

An online project management software can help you keep track of all of those moving parts and shifting prices. They include features to make project budgeting and cost management easier, such as the ability to create a baseline, track labor rates, and add new charges on a task-by-task basis. You may easily change and add items as they arise throughout the project with these functionalities. However, before you can manage a budget, you must first understand how to build one that is accurate.

How to Create a Project Budget?

Making all of the line items easy to track is the key to generating a project budget. If you can apply a simple approach to project expenses, you can keep track of project spending precisely and on schedule.

Follow these easy steps to create a project budget that will help you succeed.

• Identify Expenses

Identifying expenses is the first step in developing a budget. You should make a list of everything that is required to complete a project. These covers pay for labor, equipment, and materials, among other things.

To begin, you'll want to properly study your project plan and determine charges on your own. Then, if you ask your team members to check through your spending list while developing a budget, they could be able to help you spot specific expenses that you didn't recognize right away. It's critical that you keep track of every single expense. The more you identify, the less likely you are to be startled by unexpected costs later on in the project.

• Estimate All Costs

Now assign a value to each item in your list. You can directly add your estimate to the line item. You can use a variety of ways to come up with your estimates. The following are the most popular estimation methods:

• Bottom-Up Estimating: Start with the components of each task and then add them up
• Expert Judgement: Ask experts on your team to work out the cost of a task
• Analogous Estimating: Use past experience to judge how much the project tasks will cost this time.

Add all of the estimates together. This provides you with the project's overall projected budget, which includes the cost of each activity. You can achieve this with the help of an estimate template.

• Add in the Extras

Extras? What extras?

Unfortunately, the expense of each individual assignment will not be sufficient. You might still wish to include:

• Management Reserves: This is money that will be used at the discretion of management.
• Contingency: Contingency costs are important for covering unexpected costs that arise as a result of poor estimating. It's standard practice to include a 10% contingency in case the estimations turn out to be incorrect.
• Risk Response Budget: If your organization is experienced in managing project risk, you may be able to segregate the risk response budget from the primary budget. The budget for risk mitigation is included in the risk response budget.

Need more insights on creating a Project Budget? Sign up for a PMI-authorised PMP bootcamp today!

Richard Pierce An expert in Pmi and Iiba Certifications.