This video defines project budgeting and discusses the production of initial budget estimates and dealing with differences in the initial budget estimates and budget targets, or constraints, set by management.
- Bankruptcy leaves a really bad impression. If you don't establish, manage, and control costs on your project, you can end up with a bankrupt project where costs exceed benefits. To avoid this fate, you should control costs while delivering needed outcomes. The project budget is the tool to ensure that you're spending doesn't exceed your funding limits. Here are my suggestions for creating a project budget. First, focus on the triple constraints, the schedule, the scope, and the costs.
If you ignore any of these, you could spend too much time focusing on the projects product, and spend more money than is feasible. An analysis of what you can and can't possibly accomplish and what the costs are, is important when creating an accurate budget. A comprehensive project budget isn't overly complicated, but it does have to take into account business realities. Second, think about your project from start to finish. Ask the following questions.
How much money has been allocated? What expenses are mandatory? Which expenses aren't vital for success? Can I create realistic estimates, and if not what research do I need to do to produce them? Has this type of project been done before, and can you obtain historical cost information? Third, look at your major expenditures. The typical budget specifies costs, for labor, materials, costs of financing, and other costs such as travel and communications.
I suggest spending time determining the costs of each of these categories. Ask people to share their experiences. Doing these things will help you piece together a more accurate budget. Four, discuss contingency dollars with your sponsor. Contingency is money set aside to address risks such as, technical difficulties. Because projects create business change, which can be unpredictable, it's important to have contingency funds set aside to handle the unexpected.
Lastly, consider the information you'll need to support the cost and benefit data for the project. This should come from your project sponsor and major stakeholders, and should be in a business case for the project. This information should reflect a balance between the money you spend and the benefits you provide for the business. Keeping this in mind can help you manage expectations with your sponsor and key stakeholders. A project budget should not be a random prediction, it needs to be a realistic evaluation of the costs for everything you identified in your work breakdown structure.
For more information on the work breakdown structure, check out other project management courses here in this library. Building your budget can be a tedious process. However, the effort you spend building an accurate budget will pay you back tenfold as you track and manage the costs of your project.
Note: This course follows the latest guidance from Project Management Institute, Inc., as outlined the PMBOK® 6 Guide.
- Recall best practices for project budgeting and estimation.
- Distinguish common estimation approaches used to build project budgets, and understand when to use them.
- Identify best practices for budget expectation management, while utilizing sound budget refinement techniques.
- Describe and explore agile project budgeting techniques.
- Review various approaches for correcting project budget overruns.
- Review sound budget reporting approaches, including how they can be used to report project status.
- Recognize the issues and changes that can put a project budget in jeopardy.