Budgeting Practices Part 1

While discussing project budgets, I often run into bad budgeting practices. Here is one I would like to bring to your attention.

Bad Budgeting Practices

In order to determine the project budget, a quotation was asked from the supplier that was to deliver the required services. This quotation was then used as the project budget.

This is a bad budgeting practice, because one of the purposes of a budget is to verify that the quotation(s) received are reasonable or not. This means that you cannot use a quotation as a budget.

Good Budgeting Practices

It should be obvious that a budget should be as independent as possible. When determining your budget, you should use several independent sources for your cost information. This will give you a feeling for the current market situation.

Also keep in mind that your budget is based on a certain scope. If the scope is not clear to the suppliers, you will not be able to compare the quotation(s) with your budget.

Budgeting should always be done independent from suppliers.

 

References:

Determining Your Project Budget

9 thoughts on “Budgeting Practices Part 1”

  1. Victor, thanks for the education. We sometimes fall into the trap of obtaining a quotation and using it as a budget when we consider the project as small and also have worked with the said contractor on previous projects and consider them reputable.

    1. Edward, thank you for your comment. Yes we have to be aware of that temptation. There is nothing wrong with asking a (potential) contractor for a budgetary price, we just have to make sure we have a way of verifying that the quote is within range. That is why the discipline of cost estimating exists: to check quotations.

  2. @Rod, thank you for your comment and sharing. Do not be sad, there are better companies to work for.
    Indeed the scope should always be the basis for your budget and your budget should be as low as possible while meeting the requirements of the scope.

  3. The sad thing is I was fired for coming up with a budget and not using a vendor contract as the basis.  Instead I was negotiating the final outcome with the preferred vendor and adjusting the scope to meet economic drivers.
    Folks don't always understand that SCOPE is the key and cutting out un-needed items or finding lower cost alternative is always a tool that should be kept sharp.

  4. Rudy, thank you for your comment. Indeed there is so much more to budgeting. I can write a complete book on budgeting. The complete set of budgeting good practices will be discussed in my upcoming ebook on project management.

  5. Clearly this is a very bad budgeting practice. I agree totally with the article. However, there is so much more to budgeting than getting a quotation. There is budgeting for contingencies, looking at the risks involved in the particular project and many more factors that need to be taken into account.

  6. The article is very informative.  As project managers if we consider the good budget practices as outlined we will save ourselves from some pitfalls

  7. I found this article on Budgeting to be very helpful.  As project managers we often time experience pitfall because of the way we budget.  Good budgeting practices as explained should be considered to ensure things work well

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