Managing a project budget is a key stage of project management. It deals with the delicate part of expenditure and financial resources.
As a project manager, your goal is to ensure that all of your projects are completed. And, if you are unable to manage funds efficiently, you will risk not completing your projects.
Here are 10 tips for a successful project budget, as well as the advantages of using the right software to manage your project budget efficiently.
What is a project budget?
A project budget is part of a financial process that can be divided into three phases:
- cost estimation,
- established by referring to actual costs of similar projects if possible, it is linked to the estimated timeframe,
- project budgeting,
- budget is allocated according to the breakdown of the project,
- cost control.
NB: a popular calculation method used in project cost management is Earned Value Management or the S-curve. It is used to measure the progress of a project and anticipate the next steps by comparing forecasts with actions that are being carried out and their associated costs.
As a financial and realistic representation of your project, a project budget consists of listing, identifying, and classifying :
- the revenue you have acquired or in the process of being acquired.
Planning and elaborating a strategy in advance will allow you to set a relevant project budget along with steps to review it constantly. This can then be used to monitor your project and see if it is being carried out successfully.
Thus, among his missions, a project manager must:
- assess the feasibility of the project (market study, make an estimate of the budget and available resources, etc.),
- set objectives,
- breakdown projects and schedule tasks,
- allocate human and material resources,
- identify risk factors,
- plan projects and schedules,
- create quotations and allocate project budget,
- present to management for validation, and make corrections if necessary,
- monitor the progress of the project,
- adjust schedules and budgets in real-time.
Here we focus on step 7, which, given its place, is a pivotal step between the strategic and operational phases.
Why is a project budget so important?
Thanks to this forecasting tool, you can visualise the feasibility of your project upstream, make adjustments, and reach your targets or the expected margin.
A project budget can be used to:
- help in the decision-making process,
- consider several hypotheses for action, more or less ambitious,
- anticipate your future outcome,
- confront your desires with economic realities,
- apply for funding or partnerships,
- present a credible and viable project,
- regularly analyse and compare your PO with actual expenditure and income,
- adjust your project as needed.
10 tips to create a successful project budget
Here are 10 tips to help you create a successful project budget:
Tip 1: Don't neglect the investment analysis phase
The investment analysis phase includes a calculation of the estimated return on investment (ROI), but also a forecast study of the cash flow. This is used to value the projects in the portfolio (PPM or Portfolio Project management, in the case where several projects are piloted in parallel).
Tip 2: Diversify funding sources
A project budget can be used to diversify the funding sources (public, private, etc.) of associations that deal with requests for subsidies. Moreover, it can be used to reassure each investor. A share of self-financing is often added to make up the difference between the resources and the planned expenses to show the company's involvement.
It is impossible to look for a margin (not-for-profit nature), your target should simply be financial equilibrium. Moreover, an investor is not intended to help you generate profits, he or she is there to help you achieve a goal.
Regardless of the type of business involved, planning a project and diversifying the sources of funding can help offset the eventual withdrawal of one of them.
Tip 3: Value your in-kind contributions
Estimate your "valued" expenses (lending equipment, rooms, volunteering). This is important for associations applying for a grant, or companies requesting the participation of a partner. You will often have to translate the amount requested into a percentage of the total project. If the room is valued, the total budget goes up, but the share requested from the funder goes down as a percentage.
Tip 4: Divide your budget
Rather than budgeting over the lifespan of the project, try to do it monthly. This will allow you to have a clear overview of your project budget and be able to adapt it according to the challenges you may face (change of suppliers, delays). There is also less margin for error.
For example, you can use an Excel sheet with the major phases of your project in the header columns, the months on separate lines and the costs of each stage at their intersection. It will then be easy for you to add up the total estimated budget.
You can also proceed by creating your project budget according to the type of expenditure. At each budget review, it is important that you quickly identify losses and profit.
Tip 5: Involve your colleagues
As a project manager, you are in charge of operations. However, you may not always be aware of all of the elements that must figure in accounting forecasts. Nor will you be aware of the expenditure and needs of other departments that contribute to the operational phase of the project (marketing, research and development, etc.).
A collaborative dimension is another success factor in project management. You must involve different colleagues when creating a project budget in order to merge the practical knowledge of each member together.
It is strongly advised against delegating this task to an accountant. The administration and the field must walk hand in hand.
Tip 6: Find the right price
It is quite normal to underestimate or overestimate your expenditure.
Contrary to what you may read or hear, do not inflate the expenses. A small margin of safety (+ 5%) for uncertain expenses is allowed, but generally speaking, it is better to stick as close as possible to your actual forecasts.
Instead, it is recommended to set aside a cash reserve so that you don't have to worry too much about equipment failure or increased expenses, for example.
Some businesses prefer to add a line entitled "management fees" equivalent to 10% of the total budget at the bottom of the table.
Likewise, you should not underestimate your expenses. A restricted budget will quickly turn into a source of problems and conflicts between several tasks.
In the project implementation stages, analyse risk factors to avoid this type of situation.
Tip 7: Do not underestimate deadlines
Time is money. If you are planning to launch a product too early, postponing it may explode your budget (extension of an emailing campaign, cancellation, and postponement of the reservation of the event venue, etc.).
Furthermore, if you ask your employees to estimate their future workload, be aware that they will tend to be overly optimistic. You should add a 20% safety margin to the time they estimate they will spend on each task.
Tip 8: Monitor your budget
Track expenses and the time spent by each team member on each task. Then, compare the estimated costs with the actual costs to anticipate what will happen next.
Tip 9: Communicate with your team
As a good manager, you know that the success of a project does not only depend on good project management. It is also based on the skills and commitment of your employees.
Thus, internal communication, especially around the project budget and its evolution, will :
- stimulate collective intelligence,
- decompartmentalize skills,
- merge talents,
- improve relationships within the team,
- harmonize workloads,
- make employees feel secure,
- rule out many risk factors associated with human resources (accidents, disengagement, work overload, etc.).
Tip 10: Maintain your budget spreadsheet
Do not create your project budget spreadsheet on Excel or use project budget templates.
If you are creating your project budget spreadsheet on excel, you need a solid accounting background to think about all the of expenses and know where to put them.
Moreover, it is not recommended to use project budget templates because each project is unique and you may deal with complex projects that may not be able to adapt to pre-configured templates.
Whether you use Excel or more sophisticated software, keep track of your calculations so you can go back and understand how you arrived at a specific result.
What software can you use to manage your project budget?
Wrike is a cloud-based project management software designed to help project managers plan projects using templates and assign teams to collaborate on them.
With this fully transparent tool, project managers can set tasks, subtasks, deadlines, and milestones. Moreover, they will have a variety of visual tools at their disposal such as Gantt charts and Kanban boards to give them a global overview of project updates with colour-coded tasks, assignment details, and real-time statuses.
Wrike also allows project managers to monitor their budget over the course of the project to stay up-to-date on any budget variances and manage their impact.
monday.com is a cloud-based work management software that project managers can use to manage project budgets.
Thanks to its system of customisable tables, project managers can manage tasks and sub-tasks using a visual and intuitive tool. Once projects are identified, it is possible to assign each of them with the required resources and budget.
This project management tool goes one step further, by providing time management features (to meet the deadlines of your projects) and by offering different views of your tables, with a Gantt chart for example.
Netsuite is a cloud-based enterprise management software designed to help SMEs manage their core business processes.
With this solution, project managers can make estimates on how much a project will cost and set cost and billing budgets accordingly.
This will also allow them to determine whether a project is on track financially to detect and resolve unexpected situations, like scope creep, milestone changes and project overruns.
With NetSuite’s Project Costing you can:
• monitor project performance
• drive profitability
• evaluate costs
• get strategic insights