Here is another example of bad budgeting practices we should avoid.
Bad Budgeting Practices
Sometimes funds are made available to an organization to do a certain project. Let's say the organization receives 10 million dollars to build 300 family homes. The organization then sets out to do the project, however without having determined the project budget. When asked what the project budget is, the answer is: 10 million dollars. Hmmm.
There were funds available, but the amount of money needed to build the 300 homes (the project budget) was not separately determined. Imagine building 300 homes without a budget.
We often confuse project funding/financing with the project budget. They are NOT the same.
Good Budgeting Practices
In project management when we use the term budget, we mean the project budget, the amount of money needed to realize the project based on the scope.
The project budget is based on the project scope and should be determined independent of the funds available.
In our example the budget should be determined based on building the 300 homes. If the budget is less than 10 million dollars, then we are ok. If not, then we either have to adjust the scope or look for additional funding. Sometimes we will have to do both
AVAILABLE FUNDS ARE NOT THE SAME AS THE PROJECT BUDGET