The project budget is the total estimated cost to complete a project over a stipulated period to achieve specific results. It is the detailed estimate of all the resources needed to complete the project’s tasks, whether financial or physical and human resources. The budget considers the idealization, execution and delivery of the project.
Creating a project budget is one of the most challenging tasks in your planning process, especially for novice managers. The good news is that an efficient budget can be easily created when you know what should be included. Keep reading and find out how to budget a project!
Learn more: How to manage project resources in 6 steps
The importance of controlling the project budget
Budgeting projects is a crucial task to ensure that they are completed within the established financial limits — without leaving aside the commitment to achieve the results they seek.
In this way, your company achieves not only operational efficiency but also financial security and greater transparency of the resources used in each project.
Free Ebook: 12 Steps to Create a Risk Management Plan
Tips on how to budget for a project
This work of creating and managing the budget usually involves not only the project manager but the entire team involved in it. Everyone must know the importance of controlling the budget precisely, as well as what are the good practices and actions necessary for this management.
In most cases, a project budget requires detailing all the costs involved in it. This can include equipment, tools, software, hiring, suppliers, renting spaces, and hiring employees.
Below you know the main items that need to be in your project budget to ensure the financial effectiveness and strategic objectives of the project.
Direct costs
Direct costs are those expenses that are directly related to the project and can be identified, measured, and controlled accurately. They refer to materials and labor that are applied directly and exclusively in the execution of the project in question.
An example of direct cost is the hiring of specific outsourced labor for the execution of a project activity.
Overhead
Indirect costs are those costs that help the company carry out its daily activities but cannot be easily tracked. That is, these costs cannot be linked to a specific project or service.
Examples of overhead costs include:
- Rent;
- Water, electricity, telephone, internet;
- Security and property cleaning service;
- Maintenance of machines.
Fixed and variable costs
Fixed costs are those that do not have their value changed, regardless of the duration of the project.
For example: imagine that your company is doing a project on a public road and would like to run an advertising campaign publicizing the benefits of the work. Your expense with this advertising campaign is a fixed cost since it would not be changed if there is a delay in the delivery of the work.
Variable costs, on the other hand, fluctuate according to the units used during the project.
Using the same example of the work on a public road, if your company needed to rent a machine to perform part of the work and there was a delay, the expense of renting this machine will increase. Likewise, if the work ends before the expected deadline, the expense of renting the machine will decrease.
Labor and materials
The cost of labor is the sum of all salaries paid to employees involved in the project, in addition to benefits and taxes paid by the company. These costs can also be divided and classified as direct and indirect.
Material costs, on the other hand, refer to the entire amount invested in raw materials for the execution of the project. For example, in a construction project for a building, this may include: cement, bricks, plumbing materials, electrical materials, etc.
The cost of materials plus the cost of labor will help you determine the total cost of executing the project.
Travel costs
If you are planning a project that requires some kind of travel, this should also be included in your budget planning. These expenses are those associated with displacements whose objective is directly linked to project activities.
Examples of travel costs include: air travel and local transportation, car rental, lodging, and food (during the trip).
Read also: what they are and how to manage project risks
Conclusion
Now you know what you can’t miss in your project budget. In addition, you understood the importance of this control and its role in your company’s budget transparency and effectiveness.
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