The project budget refers to the amount of money needed to be spent to complete a project. It includes all the estimated costs incurred before the project’s completion. The project managers use it to estimate the total cost of a project. It includes labor costs, material, and procurement costs, and operation costs. It is not a static document, meaning that it will keep changing throughout the development lifecycle.
The project budget is a document in which the project managers note down all the estimates regarding the expenses made while a project is under development. The cost of each phase is estimated separately, and the final cost is calculated by adding all the individual costs of each phase.
It is just an estimation, and actual costs may vary, but the project manager should estimate as accurately as possible using different cost estimation techniques.
The Need for Project Budget
The project budget is a directive that clarifies your project’s financial needs. It helps you let the stakeholders know how much funding is needed and when it is needed. Furthermore, it acts as a baseline to track your progress and get the actual costs once the project has been started.
How to Create It?
Creating a project budget that covers all the financial needs is necessary and crucial to the success of any project.
Here are some steps that you can follow to get an effective and more accurate one:
Using the Previous Projects’ Budget
If you work with an organization, this would not be the first project that your team is working on. Use the historic data collected during previous projects similar to this one to create a more accurate project budget.
Reference the Lessons Learned in Previous Projects
To avoid repeating the mistakes, reference the lessons learned from past mistakes. Learn how the project budget was controlled in previous projects. This helps in creating more accurate estimates for the current projects.
Reach Out to Experts
Look for the people who have previously created the project budgets and know-how estimation should be done. These experts could be your mentors, other project managers, or anyone having experience doing cost estimation.
Validate the Accuracy
Once you have got the budget ready, you are not done yet. You must make sure that your estimations are as accurate as possible. To validate your project budget, you can refer to the experts or other team members having cost estimation experience.
Baseline and Rebaseline Your Project Budget
As stated earlier, your project budget will serve as the baseline once your project gets into the execution phase. But as the project evolves, it starts getting out of date, and you need to rebaseline it to keep using it as a baseline to track the progress of your project and your team’s performance.
Real-Time Update
You should use software to update your project budget as soon as the project leaders approve any change. If you do not use the technology in today’s world, you are wasting a lot of time and energy on something with more chances of failure.
Get on Track
Whenever your team gets off track, and things start to delay, the project budget tends to bring them back on track. A project team should always remember that the project cost increases as the schedule changes and work is delayed.