Project Budgeting: Essential Steps for Success

Create a project budget by defining scope, identifying costs, planning contingency, determining format, allocating, and monitoring.

### How to Create a Project Budget: 6 Essential Steps
* 💡 Step 1: Define the Scope - "Understand your project's scope to **prevent budget overruns**. The devil is in the detail."
* 💰 Step 2: Identify Direct and Indirect Costs - "Direct costs are **one-time expenses**, while indirect costs are **recurring**. Direct costs are covered by the project budget, while indirect costs are **passed on to the business**."
* 🔮 Step 3: Identify Contingency Costs - "Plan for unexpected expenses with a **contingency budget**. Not every contingency needs to be planned for, but having a banked amount for **unforeseen costs** is crucial."
* 📊 Step 4: Determine Budget Format - "Consult with finance to establish the **budget tracking format**. Most organizations have specific **spreadsheets and reporting expectations** for project budgets."
* 📝 Divide the budget into specific tasks or activities to **avoid overspending in one area and impacting another**.
* 📈 Step 6: Monitor and Manage the Budget - "Regularly monitor spending and report to finance. **Adjust allocations as needed** and be prepared to **request additional funds for unforeseen expenses**."

you cannot run a successful project if you are not clear on your project budget. But how do you become clear on a project budget if you've never created a project budget before? Well, don't worry, I got you covered in this video because we're going to talk about how to create a project budget. Step one: Define the scope. So, the very, very first thing you have to do when you're putting together a project budget is you have to understand your scope of your project because your budgets can be based on that scope. So, if your scope for your project is very loosey-goosey and you're really not locked down on it, then it makes the budget very loosey-goosey, and I promise you, you will exceed it because you're going to find out as you lock down what it is that you're doing that your budget's going to increase. Always happens. I have never found that correlation not to occur because you just have more details. So, what do I mean by scope? What exactly it is that

you're doing what are all the ins and outs. That's probably the most critical thing when it comes to your scope and your budget because it's the detail. The devil is in the detail. So if I have an understanding what's in scope and what I'm not doing, which is out of scope, then that allows me to start brainstorming and understanding how much am I going to really need to make this deliverable come to fruition. So that scope statement absolutely huge something that's important. You need to get that locked down, and you need to get it approved. Once you get it approved, then you can start asking for the budgeting around that and figuring out how much are things going to cost to actually make this scope come to fruition. Okay, before we continue, see this here. If you're going to do budgets, you're going to need this. I'm going to tell you later on in this video how you can get your hands on it. So stay tuned. Step two, you need to identify direct cost and indirect cost. So in order to do this, you have to do

step one you've got to be really clear on your scope and everything that you're going to be delivering and really spend time figuring out what that is because now you have to bucket it into different areas. You have your direct costs, which are costs that are directly related to what you're doing. There's usually one-time costs, so if you're installing new hardware somewhere, you've got to purchase that hardware. You're only going to purchase it once. That's a direct cost to the project. An indirect cost, you also have to think about that. These are subsequent costs, these are costs that can be repeated. So in that same example, let's say you have software that's going to go on that hardware and it's a software license that you purchase that has to be renewed every year. That's now an indirect cost to the project. Yes, you're going to purchase it once, but now every year you have to renew it. Now who's going to maintain that? So that's the indirect cost. Why do you have to do that? Because your budget

will cover the direct costs, but it's not going to cover the continuous indirect costs. You have to pass that off to what we like to say the business. The business is going to be taking it over, and they now have to add that to their budget. So you gotta understand those things because now you're going to have to negotiate and bring those people on board and ensure everyone's on that same page. So that's really step two. Step 3, identify contingency costs. Adriana, why are there so many costs? One, because you're dealing with budget. I promise you there's a ton of things to think about. So what is contingency costs? These are things that pop up in the project that you couldn't plan out. Maybe they're associated with risk, and the risk came to fruition, or they're just things that, as I said, you couldn't plan out. You didn't even think about. So you kind of have to have, I call it banked hours or bank, a bank of money for contingency things that you need to

ensure you get covered to make sure your project comes to fruition. So a lot of times, you can pre-plan those things in a way by thinking of, for example, you purchase hardware. It's coming from another country, you have to ship it, and you have custom costs associated with it. And if something goes wrong with that shipment, and you're let's say you need to expedite it for whatever reason because a manufacturer ring was later than expected. So now you have to air freight it over versus doing it on a ship, leaving me two different costs. So you want to have those contingency costs in place in case you need to act on your contingency plan. So that, again, is something else you have to think about and build into your budget. Don't get me wrong, you don't have to plan for every contingency, but you do have to have some sort of bank contingency budget to cover those types of things that may pop up. Okay, even though this is not directly related to budget, I just mentioned it about risk. You need to know how to do

risk planning as well because through your risk planning that's going to bring up the contingency that you need. And as my slave students say all the time, they're so grateful for the risk mitigation and contingency planning that I have in the course. If you're interested in it all, go check it out. It's in the link below. Step four, determine your budget format. Okay, so now you have step one, two, and three all locked down. That's your job as a project manager. Now what you need to do is don't guess the format, go to a finance person because I promise you if you're dealing with a big Budget, Finance has a way that they want you to track it. They probably have specific spreadsheets that they want you to use because it makes it easier for them. So connect with senior Executives, connect with your sponsor, and connect with a finance person to find out how do they want you to track it. They may even have an expectation on reporting on that budget so again if there's not a clear-cut

reporting structure. I think the bare minimum is: here's what I have, here's what I've spent, here's what I have left over. Like, that's like the bare minimum. Again, every organization is different. It is your job to check in with the finance department to figure out how do they want you reporting on this budget so that you can follow their format. Step five, allocate budget to specific tasks or activities. So now that you have your budget, you're very clear. You now have to allocate that. So you need to have an understanding that it's not just one big pot of money. It is certain parts of the money is going to go towards certain things. So you need to allocate it so that you can keep that under control. It's really important so you don't overspend in one area and then impact another area. You have to know how much money do you have to spend, for example, on training material. Let's say you're executing a new software and you have to create training material. How much money do you have for that? That's going

to dictate the type of material, you use the type of training you're going to have. That's why budget is so important because it gives you your parameters on what you're going to do from a task and activity perspective because you only have X amount of money to spend. Step 6: Monitor and manage the budget. Okay, we touched upon this because I said find out the spreadsheet from the finance person because you have to report into them and give them what they want. This is why because now that you've allocated everything, you're very clear you have your money. You have to monitor it. You're going to need to have your team members if they're spending some of that budget because again as the project manager you're going to have Hardware Engineers you're going to have individuals who are in charge of purchasing certain stuff. You just need to ensure that they come through you. They give you the invoicing. They share with you the statement of works that they're doing, etc. So you can monitor what's going on. You've already allocated.

it. You then want to report it through. You probably want to have that with your monthly steering committee member. Let them know where you are in the spend. So, again, monitoring and maintaining. Because as you're monitoring, you may have to jig some things around. You may even have to ask for more money because something came up and it just wasn't part of your contingency plan. So, again, this is your working of your budget in your project. As you're executing on everything, is you're not only monitoring project tasks, you're monitoring the budgets associated with those project tasks. Now that you know all about creating a budget and how to do it in your project, you need to get this. If you want to understand how to make sure your projects don't fail, which I promise you if they do, your budget will be impacted. You want to get this. It's free for you. Where do you get it? The link is under this video. Make sure you watch this next video. It's on the ABCs of project cost Management. On that note, if you like this video

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How to Create a Project Budget

Adriana Girdler

Creating a Project Budget: Step-by-Step Guide

Defining the project's scope is crucial for creating a clear budget, as a loose scope leads to budget overruns.

Understanding the details of what is in and out of scope helps in estimating the necessary costs.

After getting the scope approved, the next step is to identify direct and indirect costs associated with the project.

Project costs are divided into direct and indirect costs, with direct costs being one-time expenses and indirect costs being recurring.

It's important to pass on the responsibility of indirect costs to the business, as the project budget won't cover them long-term.

Contingency costs should also be identified to account for unexpected expenses that may arise during the project.

Effective Project Budgeting and Contingency Planning

Project managers should pre-plan for potential issues, such as shipping delays and unexpected costs, by including contingency budgets.

Risk planning is essential for identifying potential issues and determining the necessary contingency funds.

It's important to consult with finance personnel and senior executives to establish a budget tracking format and reporting expectations.

A clear reporting structure is essential for budget management, including tracking what is available, spent, and left over.

It's important to allocate the budget to specific tasks and activities to avoid overspending in one area.

Monitoring and managing the budget involves working closely with team members and the finance department to ensure proper oversight and accountability.

Monitoring and Maintaining Project Budgets

Monitoring and maintaining the project budget is crucial, as it may require adjustments and additional funding.

It's important to track the budgets associated with project tasks while executing the project.

A free resource is available through the link under the video for further guidance on project cost management.