Budgeting Practices Part 2

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

 

 

 References:

Determining Your Project Budget

Budgeting Practices Part  1

10 thoughts on “Budgeting Practices Part 2”

  1. Your example Victor represents a true picture of what is happening in practice. It is a pity that project leaders use the quotation of vendors as the budget for the project without defining what the project needs to deliver. What you have communicated Victor can be put in short form as: SWSB (Scope, Work Breakdown Structure, Schedule and Budget). Thanks for sharing Victor.

  2. Hi Ryan. Thank you for your comment. However, I am not sure I understand your comment. Can you clarify your comment a little? Thanks

  3. "We often confuse project funding/financing with the project budget. They are NOT the same" I think your piece points to major expectations persons have about 'funding for a project' and 'budget for a project'.
    Thanks

  4. It's true that we often confuse project funding/financing with the project budget. They are NOT the same.We often confuse project funding/financing with the project budget. Project budget is totally scope dependent & the root cause of budget crises is not that things are being done poorly. In most cases right things are being done but becomes problem with scope assignment.

  5. Michael, thank you for your comment.

    Yes, we all make these mistakes somewhere along the road. The idea is that we learn from each other how to avoid them.

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