How to Create a Project Budget: a Step-by-Step Guide
A project budget is your fuel—it enables the start of the project, its progression, and completion within the given time. A budget is not limited to the money and goes beyond that. It is a schematic of how the entire project will be executed from conception to the end of the delivery. A well-calculated budget ensures your external team is equipped with the right resources to deliver results efficiently and on time.
In the following article, we will assist you with preparing the budget and how to create the project in a detailed manner that achieves what your business has set.
What is a Project Budget?
A project budget is a detailed plan that covers three essential questions:
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How much will you spend?
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What will you spend money on?
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By when will you spend the money?
In other words, a project budget covers the combined costs of all tasks, goals, and activities needed to complete the project. You will spend a certain amount of money on the project, and all the stakeholders should approve it.
In 2021, the Project Management Institute survey reported that only 62% of projects in their organization were completed within the original budget. One of the reasons why it happened is that the budgets were not created in advance. If you create a project budget beforehand, you reduce the chance of running out of resources or going over budget.
What should a project budget include? Here are the key components:
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Labor Costs: All expenses on team members and contractors involved in the project, such as overtime, salaries, hourly wages, and hiring costs.
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Material Costs: All expenses on necessary materials such as supplies, raw materials, etc.
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Fixed and Variable Costs: Fixed costs include office rent and software subscriptions, and they remain stable throughout the project. Variable costs include hourly labor or material costs.
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Operational Costs: Day-to-day expenses such as utilities, communication tools, and travel expenses are necessary to make the project run smoothly.
Why is Project Budgeting Important?
1. Project budgeting helps secure project funding. The exact numbers will tell all stakeholders how much money you need and when the money is needed. In other words, without project budgeting, you risk ending up without project funding.
2. A well-planned budget allows you to control project costs. This is especially important, for example, when outsourcing IT development. When you have an end budget estimate, you can measure how much the project costs compared to the approved budget. As a result, you can see how the project is moving and whether you need to make any changes to the plan.
3. A project budget is essential for the company’s financial viability. If you calculate your budget with resource constraints in mind, it is likely to increase the operating budget and ensure project success.
Key Steps to Create a Project Budget
Creating a project budget may seem complicated, but it becomes easier once you know what steps to follow. In this guide, we’ve laid out the path you should take when creating a project budget, from A to Z. Let’s dive into it.
1. Set Your Objectives
Embarking on any project for that matter, the first natural step is always to insist on explaining the demarcation of the project. In any such compass, stating as much as one intends to achieve by the end of the project is critical.
This also helps in mapping out ways of undertaking the work, it also gives a sense of direction of progress, as well as the focus of the work.
How do you know whether you have properly stated the objectives? Measurability of objectives are achieved in one of the best methods called SMART which stands for specific, measurable, achievable, realistic, and time-bound.
For example, your objective may sound like this: “By the end of this quarter, we will increase organic traffic on the website by 15%.”
2. Define Project Scope
You can then assess the amount of work that needs to be executed in order to meet your goals once you have established your objectives. That is what project scope is about – it provides limitations for your up-and-coming project by clarifying what should be done, and when.
Here’s what to consider when defining your project scope:
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Available resources: Before creating a project budget, you should clearly understand the resources at hand. For instance, if you have a limited budget or a small team, it is necessary to adjust your deliverables.
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Time restrictions: You need to understand whether the deadlines for the project are tight or you can take your time since a tight project schedule can influence the overall cost.
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Non-goals: Apart from identifying your goals, you need to understand what you don’t want to achieve to avoid scope creep and overspending.
3. Break Down Deliverables
Once the project scope is ready, list out all the deliverables and break them down into sub-dependencies. For example, if one of your dependencies is to publish a new landing page on your website or a blog post, you can break it down into the following steps:
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Create a draft
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Proofread and edit the draft
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Create illustrations
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Stage in WordPress
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Share on social media
This method is an effective way to predict hidden expenses and create a more accurate project budget. Using Flowlu, you can break down deliverables into manageable tasks with associated budgets and deadlines. Its task management features allow you to link these deliverables to specific team members and resources, ensuring no step is overlooked.
4. List Required Resources
When your project roadmap and deliverables are all mapped out, it’s time to gather the resources required to bring everything to life. Resources are not just people and tools; they also cover training sessions, productive workspace, and everything else that fuels progress.
Here are the key resource categories you can consider:
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Team Members: Who will be handling the work? Note whether they are a part of your core team or if you’ll work with third-party contractors. Think carefully about the skills required and how to cover them.
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Gear Up: What assets will your team need to get the job done? Picture extra monitors, upgraded design software, or even top-notch internet speed. The right tools turn good work into exceptional results.
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Knowledge Boost: Is there a learning curve involved? Time and budget for training can be a smart investment, whether it’s onboarding new hires, giving your team access to a course, or holding in-house workshops.
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Supply Chain: Identify any key external resources and the process to secure them. Maybe someone will need to scout products, handle supplier relations, or negotiate the best deals on tools and tech.
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Home Base: Where will the magic happen? Think of your workspace as the heartbeat of your project, whether it’s setting up a dedicated area in the office or sourcing remote meeting spaces for virtual teams.
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Insight and Intel: Data is the foundation of smart decisions. Consider what research, user studies, or analytics will be essential, and allocate resources to gather insights that drive success.
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Specialist Support: Sometimes, you need pros who bring niche expertise, like a legal consultant or a marketing guru. Having a skilled consultant can prevent pitfalls and enhance impact.
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Journey Logistics: If travel is involved, think ahead about transportation, accommodations, or meal stipends for team members on the move. Smooth logistics make the journey as seamless as the destination.
Flowlu helps you centralize all resource planning. Whether it's tracking team member availability, managing external contractor costs, or listing software and tools required for the project, Flowlu ensures you stay organized. Plus, you can attach budgets to each resource category for a more transparent view.
5. Estimate Costs
Developing a budget is all about calculating your figures. With some approaches, you can easily improve the precision of those figures. While it is not feasible to predict every expense with absolute precision, employing a combination of these methods can help to develop a workable budget tailored to the specific demands of the project.
Here are some key techniques to consider:
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Add Up Individual Costs (Bottom-Up): This method involves estimating the cost of each specific task and then adding them up. If you’ve already built a work breakdown structure, you can use this approach. To strengthen your estimates, try pairing this approach with one of the others - like referencing past projects to double-check your totals.
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Work Backwards from a Set Budget: In this approach, you start with a specific budget and allocate funds to various tasks or milestones based on priority. This is especially helpful when funds are limited and you need to prioritize deliverables. While it can be challenging if you’re unsure of exact costs, it’s a great way to determine what can realistically be accomplished within a fixed amount. Combining this method with a more detailed estimation process, like bottom-up, helps ensure that you aren’t missing crucial items.
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Leverage Past Budgets for Similar Projects: Historical data from previous projects offers a treasure trove of insights. By examining where costs stayed on track or veered off course, you can uncover hidden expenses or better anticipate unexpected situations. If possible, review any "lessons learned" documents or post-project analyses for similar past projects to avoid repeating the same mistakes.
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Plan for Multiple Scenarios: In some project situations, and especially ones that have numerous variables like organizing an outdoor event with a changeable climate, it is best to anticipate everything that can go wrong. So for example you may require additional finances for bringing in tents if it is too sunny, space heaters if it is too chilly, or even for hiring a venue indoors if it rains.
In these cases, estimate costs for each scenario. If your budget has wiggle room, you can prepare for the priciest possibility. Alternatively, estimate for worst, best, and most likely outcomes, then average them to balance risk and realism.
6. Set Aside a Contingency Fund
Even the best-laid plans can encounter surprises. Maybe a tool fails at a crucial moment, a key team member is unavailable, or an unexpected opportunity pops up - like snagging a valuable asset at a discounted price. A contingency fund is a financial cushion that absorbs these curveballs, providing flexibility when the unexpected occurs.
A common rule of thumb is to set aside 5-10% of your total budget as a contingency reserve. Think of it as an investment in the stability of your project. If everything goes perfectly and that extra cash isn’t needed, it can go straight back to the company’s bottom line, adding value instead of unplanned expenses.
7. Build Your Budget
Now that you’ve outlined every deliverable, allocated resources, and estimated costs, it’s time to create the budget document itself. Here’s how to make it clear, organized, and ready for action:
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Detailed Line Items: Include each deliverable and sub-deliverable along with any needed resources, broken down into specific line items. Attach an estimated cost to each to maintain clear visibility over where funds are going.
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Resource Timeline: Add a timeline showing when each resource will be needed and when funds are expected to be spent. This timeline will keep spending in sync with project milestones.
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Responsibilities: Identify who’s in charge of managing each budget item. For example, maybe your assistant editor will track freelancer hours and invoices, ensuring each component is properly managed.
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Budget Source Breakdown: Specify which department’s budget will cover each item. Perhaps video ad production will tap into marketing funds, while IT equipment upgrades draw from the tech budget. This clarity prevents overlap and helps with approvals.
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Total Project Cost: Include a comprehensive total for the project, with breakdowns by department if needed. This way, everyone knows the overall financial commitment as well as individual department contributions.
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Budget vs. Actual Tracking: Reserve a section to track actual expenses against budgeted costs. Once the project is in motion, this will keep spending in check and allow for quick adjustments as needed.
8. Monitor Spend
Once your budget is set, regular monitoring is essential to stay on course. Establish a schedule to compare actual expenses with budgeted amounts so you can catch and address any issues early. Tools like Asana make it easy to track spending in real-time, consolidating costs, task progress, and milestones all in one view, so you’re never in the dark.
Flowlu’s financial tracking features provide real-time visibility into your project expenses. You can easily compare actual costs with your budget, set alerts for overspending, and generate detailed financial reports to share with stakeholders.
9. Get “Yes” from Key Stakeholders
Present the budget in a clear way that shows how each item aligns with project goals. This transparency will make approvals smoother and build confidence in your plan.
Conclusion
Creating a project budget is not just about numbers; it’s about laying the foundations for success. A well thought out, well organised budget gives you the resources, timeline and clarity to guide your project from start to finish. By covering every detail – from objectives to spend – you reduce risk and build confidence with stakeholders.
This can all seem like a lot to take in, but the right tools make it manageable. Flowlu can be your one stop shop for planning, organising and tracking project budgets. Its simple features help you break down deliverables, allocate resources and track spend in real time so nothing slips through the cracks. Try Flowlu today and it might just become your team’s secret weapon.
To keep your project budget realistic, start by defining your project objectives, scope and deliverables. Use historical data from similar projects to estimate costs and consider multiple scenarios to account for variables. Don’t forget to set aside a contingency fund for unknowns. Tools like Flowlu will help you monitor and adjust your budget in real time to stay on track.
Regularly checking your expenses against the budget is key to preventing overspending. Set up a process to review expenses at set intervals and use project management software like Flowlu to track costs, milestones and progress in one place. This will help you catch any issues before they get out of hand.
To get stakeholder approval present your budget with transparency and tie it to the project goals. Include breakdowns of costs, timelines and resource allocation. Show how the budget supports the project’s success and the organisational objectives will build trust. Tools like Flowlu will also generate professional looking reports to make your budget presentation more compelling.
