7 Tips to Create a Budget for Your Project
There’s a well-researched and unfortunate truth about IT projects: They have a tendency to run over budget. As technology projects grow and connect with more parts of an organization, there’s more at risk when costs run amok. Studies say that up to half of IT projects break their budgets, which can threaten the very existence of the project and even the company. So getting your budget right from the get-go is crucial.
“Budget is a proxy for project planning.” This aphorism was a live-tweet of a talk given by Aidan Byrne, CEO of the Australian Research Council. In other words, when you finish laying out a budget, you should feel like you’ve walked through the entire project.
While projects can differ dramatically, there are some common strategies when it comes to writing budgets, such as: Plan for the worst, identify where changes are likely to originate and watch those areas closely. And don’t forget the contingency plan—and a contingency budget—in case things go a bit haywire.
Here are seven tips and practices for creating a budget that supports your project:
1. The hardest project budget you’ll ever write is the first one. After that, you have both a model for budgeting similar projects, and the experience for writing detailed budgets going forward. For your first budget, get help from an experienced team member or mentor. If you’re a collaborative group, get input from everyone’s work estimates. The point is, you don’t have to do this alone.
2. Learn from other projects. Find a past project that was similar in type or scope to the current one, and use it a model. Some teams turn to their project management tool to mine data and information on how much time and money went into certain projects—and identify where resources were added or subtracted.
3. Know your core costs. Start by entering costs—the absolute must-haves to get the project up and running. They include team members, equipment, software, travel, etc. Next, compare those core costs to the total budget. If your costs fit under the total cost figure, you fit under the cap. If not, you need to have that first conversation with your boss or stakeholders about how to scale the project to be completed within the budget—or about expanding the budget.
4. Prepare to change budget estimates. Most initial estimates are just that—estimates. With the common occurrences of scope creep, unexpected surprises and the nature of doing business, at some point in the project the budget can easily change. This fact just underscores the need to manage the project budget continually. Vigilant project manager compares actuals-to-date against the initial budget and then against anticipated costs toward completion at regular intervals. And then it’s time to tweak the work plan to bring expenses in line with the total budget.
5. Monitor resources. You want your team members working on the right tasks to their full potential. Salaries are a big component of the budget, so review resource usage weekly to make sure that everyone is working the highest priorities and putting the proper amount of hours per week into their tasks. A project management tool with strong resource leveling features can help manage this.
6. Be transparent. Keep your team informed of the evolving budget forecast. Communicate what’s expected of them to stay within budget. People might start watching how they designate hours and other costs to your project. And they’ll understand any requests to change directions if they come up.
7. Manage scope. Scope creep busts budgets. To avoid unplanned work that leads to cost overruns, create change orders for work that goes beyond initial project requirements, with accurate projections of additional cost. Seek additional funding for the project to cover change orders.
Some projects are difficult to scope and budget. For example, with a construction project you can’t forecast dry rot, and when implementing new software for a large company you never know what kind of glitches will surface, or when. In either case, even an experienced project manager will be challenged when unexpected events arise. Cost overruns are common, and change orders become key tools.
And finally, using the right project management software is one of the best way to know exactly where your project stands; to track how much time and money has been spent, and to forecast the cost and timeline for the entire project. The right tool won’t eliminate cost overruns, but it can help manage them.
If you found this article helpful, take the next step. Making realistic project estimates is one of the best ways to create a budget that can stay on track throughout the life of your project. To learn more about estimation principles and skills, download our eBook, 6 Best Practices for Accurate Project Estimates.