Experienced project managers and those who work in big companies will have software and accountants to help them put together project budgets. But what if you don’t? If you are staring at a blank spreadsheet or an email from your project sponsor asking you to put together the finances for the project, then this article is for you.
We’ll look at the five things you need to do to create a basic project budget.
Use Your Task List
First, take your project task list. You might also have a work breakdown structure, and if you have one, it’s best to use that. But a task list will do as long as it comprehensively covers everything that you need to do on the project.
If you don’t have a task list, it’s time to create one. Write down everything that you have to do, and the things you have to build, make or complete before the project can be completed. It doesn’t have to be in any particular order, but it does need to include everything.
Finally in this step, brainstorm ideas with your project team, as there is bound to be something you have forgotten. Many heads are better than one!
Estimate Each Component
Now go through your list and work out the price of each item. For example, a task that says ‘set up meetings to discuss requirements’ might involve sourcing and hiring, reserving the meeting rooms or buying resources you need like a projector or flip chart pens. There is a cost involved with that, so get quotes for your room hire and the other equipment and note it down.
Do this for everything on the task list, so you end up with a price against every item. Some project tasks may not have a price attached, and that’s OK.
Add Estimates Together
Next add together all your estimates. It’s easiest to do this if you make a list of items in a spreadsheet, add the costs in the next column and then total the column at the bottom. Let the spreadsheet do the math for you! It becomes your budget spreadsheet.
It is a good idea to group your costs into categories as well, so you can easily see where the bulk of the money is going. Use categories like ‘Project Start-Up,' ‘Infrastructure’ or ‘Training’ – choose groupings that mean something in the context of the project.
Add Contingency and Taxes
It would be great if you had a crystal ball and could predict these costs with 100% accuracy but you probably don’t feel confident in your ability to do that! This is where contingency comes in. It is a fund of money based on how confident you feel that you got the estimates right. It doesn’t relate to any particular task. It’s an overall ‘emergency pot’ in case you got something wrong or left something out by mistake.
If you don’t know how much contingency to add, go for 10% of the total you created in Step Three. It is a non-scientific guesstimate that many project managers use and gives you a little bit of cushioning in your budget in case you need it.
Add a line on your budget spreadsheet at the bottom that says ‘Contingency’ and specifies the percentage you used.
Don’t forget to add in any sales tax or other taxes that are not explicitly already included in your individual line item estimates.
Add it all up, and that’s your final budget amount.
The final thing to do is to get your manager or project sponsor to approve your budget. Talk to them about how you put it together and what elements make up your overall budget.
That’s it! Project budgeting is an essential project management skill, and this guide will get you started creating a project budget.