Budgeting to Fund the Project Scope and Expected Work Effort

  • from ITtoolkit.com

Image of business person walking up stacks of coins showing the need to create project budgets.

How much will that project cost? That is probably one of the most difficult (and intimidating) questions faced by project managers. And, as luck would have it, it's also a must-answer question.  Read on to find four (4) easy steps to simplify and standardize budget estimating.

As a start, in order to establish a realistic budget, your project must be properly defined*.   Within the project environment, everything has a price. Products, materials and supplies have to be purchased, and resources have to be allocated, all at specific unit cost, and over a defined period of time. It is the cost of these items, in combination, that comprise the project budget.

When preparing a budget, every projected cost factor should be backed up by some tangible source, whether it is an actual quote, proposal, past project experience, research or some quantifiable costing methodology.  The ultimate goal is to create a verifiable cost projection that can withstand serious questioning and scrutiny (which is likely to occur if the budget is large).  Also See:  Setting IT Budget Priorities

Get to Budgeting in 4 Easy Stages

Realistic project budgets can be achieved in four (4) steps designed to ensure that your budgets are sufficiently defined and aligned to existing project needs and capabilities.

Stage 1: Set a justifiable basis for your budget projection by answering the following questions....

  • What is the source of the cost projection?
  • How was the projection derived?
  • How was the projection validated?
  • How confident are you in the accuracy of each projection?

Stage 2: Identify assumptions and constraints.

Project budgets are based on more than actual numbers. Behind every cost projection lie three factors – assumptions, constraints and risks. Assumptions are the beliefs assumed to be true for the purposes of planning. Constraints are the conditions, circumstances or events that limit “the possibilities" and are known from the outset (i.e. lack of staff). Risks are possible and probable conditions, circumstances or events that could threaten the success of a given project.

In order to prepare a realistic budget, these three factors have to be identified and defined in so far as they pertain to budgetary matters. This analysis will reveal the “wiggle room” in the budget estimate to determine the likelihood that the estimate will be realized, as well as the degree to which the estimate may be subject to change.  (Also Read:  Understanding Project Assumptions and Constraints)


Learn to Fast Track

If you like our ITtoolkit.com articles, you'll love our easy online training courses. We teach you how to use our unique 'fast track management' approach for projects, committees and I.T. services. Our courses are self paced, and include lessons, videos and templates! And you can start for free! Get Started Now


Stage 3: Skip the pad and plan for measureable contingencies.

Budgets are often “padded” to account for the unknown, taking verifiable cost estimates and then adding a “fudge factor” percentage, usually 10 to 20%. This can work for smaller, less complex projects, but in large, complex projects, fudge factors can be difficult to manage and justify. In order to establish a credible budget, separate budgets can be created to account for contingencies.

Depending on project needs, in addition to the primary working budget, additional budgets can be created to fund contingencies (the contingency budget), as well as requested changes (the change control budget). In this way, the project manager can manage the working budget as a distinct entity, and draw from the contingency budget for unplanned expenditures, and the change budget to pay for requested and approved changes. This will maintain the integrity of the working budget, and provide an accurate record for future projects.

Stage 4: Establish actionable tracking procedures.

Once a budget is approved, expenditures must be monitored, and for that, budgets must be tied to a schedule (how much will be spent and when?). In this way, expenditures can be tracked for expected utilization… i.e. at any given point in time have we spent more than expected, less than expected, or pretty much as expected? Variances can then be examined to determine whether they can be absorbed or whether corrective action must be taken.

Based on the needs of the project, budget status reporting should be a regularly scheduled project deliverable. Budget reporting should account for actual utilization compared to projected utilization, along with an explanation for any variances (and action plan as well).  (Also Read: The Art of Project Status Reporting)

Closing Tip: Finding the Budget "Sweet Spot"

No one wants to be over budget, and while “under budget” may seem attractive, if projects are continually under budget, at some point, individual budgeting skills will be called into question. And once skills are in question, so is credibility. So the trick is to find the sweet spot – a realistic budget with appropriate contingency funding to allow for the unexpected.


CHECK OUT THE FAST TRACK PROJECT TOOLKIT.

If you're looking for a fast, easy way to achieve project planning success, you'll find it inside the Fast Track Project Toolkit. This unique, informative online course gives you everything you need to become a project leader and fast tracking expert. Here's what you'll learn:

  • How to plan and govern projects using strategic project fast tracking.

  • How to use strategic project fast tracking to save time and make the most of available resources.

  • How to use strategic fast tracking to overcome project constraints and limitations.

  • How to use strategic fast tracking to negotiate with stakeholders and build shared expectations.

  • How to use strategic fast tracking to become a more productive project manager and team member.

Source: Unless noted otherwise, all content is created by and/or for ITtoolkit.com


About Us

Right Track Logo

ITtoolkit.com staff writers have experience working for some of the largest corporations, in various positions including marketing, systems engineering, help desk support, web and application development, and IT management.

ITtoolkit.com is part of Right Track Associates, proprietors and publishers of multiple web sites including ITtoolkit.com, Fast Track Manage, HOA Board List and more. We started ITtoolkit.com in 2001 and have continued to grow our web site portfolio, Toolkit products, and related data services. To learn more, visit us at Right Track Associates.

ITtoolkit News

Get the Latest ITtoolkit Updates. No Inbox Overload.

we do not sell our list

Subscribe Now
I.T. Service Planning The Fast Track Project Toolkit Start For Free

If you'd like to learn how to quickly plan I.T. service strategies designed to meet every goal for technology service alignment, service quality and end-user service satisfaction, the I.T. Service Strategy Toolkit is the right course for you. Brought to you by the publishers of ITtoolkit.com, this self-paced course is easy, engaging and actionable, giving you both how-to lessons and take-action tools. Start for free now!.

Committee Management The Project Committee Toolkit Start For Free

If you'd like to learn how to form and operate successful committees, destined to be more productive and less prone to conflict, the Project Committee Toolkit is the right training course for you. Brought to you by the publishers of ITtoolkit.com, this easy course gives you both the lessons and the tools you need to be a better committee leader and organizer. Start for free now!.

Project Management The Fast Track Project Toolkit Start For Free

If you'd like to learn how to how to streamline project management activities to get work done in less time, using the resources you have, then the Fast Track Toolkit online course is what you need. Brought to you by the publishers of ITtoolkit.com, you'll learn how to 'fast track' every stage of the project management process, from pre-project planning to the post-project review. Start for free now!.