Imagine you are part of a team of 5 gearing up to commence a project on building an application that addresses the need for parents to manage their finances without running into debt. Among the many things, you’ll consider before commencing that project would be creating a project budget.
This explains what you’ll learn as you read this article to the end. Foremost, you will understand what a project budget is, why it is important, mistakes to avoid while creating a budget and lots more.
What is a project budget?
In the simplest definition, a project budget is a put-down financial plan that covers the estimated cost to start and finish a project. According to Forbes, the 3 factors that impact the success of a project are scope, time and cost. This emphasizes the need to estimate the cost of a project before commencement. On the other hand, project budgeting is the right tools and techniques put to use in ensuring a project is completed.
There are 2 methods of project budgeting which includes:
Traditional budgeting:
This method of budgeting follows a “waterfall” approach where you start with last year’s budget and make adjustments for the upcoming year based on what you expect to spend. However, predicting exact expenses a year in advance is challenging. While you can learn from past spending and have a rough plan for upcoming projects, it’s difficult to forecast with precision. This means your budget might not perfectly match your actual costs, leading to inaccuracies.
Agile budgeting:
On the other hand, Agile budgeting works by breaking the budget into shorter, manageable periods, like months or quarters, called sprints. This approach makes it easier to estimate costs because you’re dealing with smaller time frames.
In agile projects, the cost is closely tied to the time spent on the project. Since scrum teams have dedicated members with fixed or hourly rates, you can predict the cost of each sprint accurately. With consistent sprint lengths and team members, you can estimate how long the project will take and how much it will cost overall.
You also consider other project expenses, like hardware, software, and supplies. At the end of each sprint, you review the budget to see if it was effective and adjust for the next sprint if needed. This makes budgeting more flexible and responsive to the project’s needs.
What does every project include?
Realizing that every project is unique, there are a couple of components that should be a part of your project. They include;
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Materials and supplies: This ranges from processed and raw materials that will be needed to complete your project.
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Labour: Labor costs should include all expenses related to the people working on the project. This isn’t just about paying contractors or technicians; it also includes the time spent by your regular staff.
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Operating cost: From the cost of the tools needed to the advertising cost, every operational cost should be accounted for aside from the factors not included here.
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Revenue: This is any income you expect to receive during the project. It could come from sales, services, or other sources. Including this in your budget helps you understand not just what you’ll spend, but also what you’ll earn, giving you a clear picture of your overall financial outlook.
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Buffer: This is an extra amount of money set aside to cover unexpected costs. Even with careful planning, things don’t always go as expected—there might be delays, price increases, or other challenges.
Strategies to effectively track project expense
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Do your preliminary research: Before counting the cost, you must conduct proper research on how much it will cost your team/organization to embark on a specific project. Some of the processes involved in providing you with accurate data could include defining the objectives of the project and understanding the project scope more like the details of the work that is to be done and the outcome you intend to see.
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Leverage the strength of your team: Rather than paying extra to get a deliverable done, a team member might just save the date. Take for instance, from the scenario we cited in the intro of this article, rather than paying a graphics designer to further help with the promotional designs for the campaign of the application you are looking to build, your product designer might just save the date leveraging his/her design skills. That way, funds could be diverted to other expenses.
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Communicate when in doubt: The communication gap has over time been one of the barriers to completing a project, when in doubt about a specific project be sure to communicate to your line manager to avoid extending the deadline and causing unexpected costs.
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Celebrate milestones: No matter how little, remember to celebrate every milestone of your project. Pat yourselves on the back for coming thus far.
Looking for where to build your project management skills? ABPMX is the ideal place for you. To find out more about what we do at ABPMX, get started here.