A completed project budget can help you determine if a project is financially viable. With it, you may spend what was expected and get the return on investment you want. But it takes many steps to get the best budget and nail it down before starting a project. Let's dive into what goes into creating that budget:
Define the Project
The first step in creating a budget is to clarify the project scope, goals, and objectives. What do you want to achieve? What are your expectations?
Define the project deliverables: what type of work will be completed? For example, if you’re building a website or marketing campaign, what specifically will your finished product entail? What are the technical requirements and specifications for this piece of work?
Define the timeline: how long should this project take from start to finish? This can help you identify potential costs if you know how much time resources will need (for example, having staff on payroll or renting equipment).
Develop a Work Breakdown Structure
List the resources needed to complete each project work package in your WBS. Your goal is to compile an exhaustive list of everything you'll need for this project—and then some. This will help ensure that you don't miss any details that could add up over time and cost you more than you initially expected.
At this point, you can begin to estimate these resources' costs, but you may still need more information about them. If parts of your business model are still in flux, record those as well so you can revisit them when they become clearer or change completely down the road.
Create a Schedule
If costs must be managed closely, you may also need to create a schedule. This means defining all the tasks for each work package and assigning resources to those tasks. Now you know the timeframe during which each resource is needed. This can be essential information for identifying all the resources and their costs.
For example, if you rent a bulldozer for a month, you will need fuel to keep it operating. Estimating the number of gallons used per day will help you add the fuel costs to the cost of the equipment lease.
Research Costs and Create Estimates
The next step is to research the project costs that haven’t already been estimated. To do this, you should consider all costs, with examples including:
- similar projects that have been done in the past
- materials costs (such as lumber, paint, and hardware) and any taxes that must be paid to be obtained from suppliers
- labor costs (if you intend to hire someone to help with the work), including any fees or benefits associated with hiring or payments
- equipment rental fees (if you rent some heavy machinery or tools for your project)
- permits and insurance premiums
Your estimates will be based on your phase, activity, and resource cost estimates.
Develop Draft Budget
Once you've completed your cost estimate, it's time to create a draft budget that will be more of a living document than the initial estimate. This process aims to get as close as possible to identifying all costs and expenses and including them in the final budget.
Reviewing the draft budget with key stakeholders and decision-makers in your organization who have input on how funds are allocated for projects or initiatives is critical. This should include project managers, executives, owners/partners/shareholders.
Discuss changes, if any. You may need to make changes based on feedback before finalizing your project budget. Also, be sure to include appropriate amounts for contingency reserves. These may be computed from information about identified risks.
Once you've nailed down your budget, you can continue the project. You'll be able to get started on the project and start getting feedback on what you're doing. You'll also be able to work on it yourself and bring in other people if they need help.
Nailing down a project budget is not easy, but it’s essential. Use these steps and tips to create the most accurate estimate possible for your next project. Remember that even if you think you know everything there is to know about something, always consult with others before making decisions that will impact them as well.
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