Determining Your Project Budget

 

Essential Steps

Determining your budget can be experienced in two different ways: as a rewarding experience or as a daunting experience.

The difference in these two extremes lies in disciplining our self in taking the essential steps when determining your budget. Budgeting is not rocket science, but there are some basic and essential steps that we MUST adhere to.

The essential steps I am talking about are the those needed to go from project scope to project budget.

 

 

 

See these steps as the links of a chain. If one link is not good, your chain is not good. If one link is missing, you have no chain. The sequence of these steps is also important: Does making a budget before having a scope make sense?  We are often tempted to skip one or more of these steps. We might be in a hurry or maybe it is a very small project. However, these steps are essential in good budgeting. Discipline yourself in taking them. For small projects, some of these steps are obvious and, are therefore not formalized. However these steps are there and have to be taken,  even it is only mentally. Next is a brief description of each step.

 

Scope

In the scoping phase you get a complete picture of what has to be done. From the diagram we see that every following step depends on the scope. If the scope is not complete, nothing else will be complete. Start by disciplining yourself to get a complete scope before proceeding to the next steps. Verify the scope with your client. The scope is write-up and/or  list of everything that has to be done.

 

WBS

Next take the write-up or list from the scope and break it down into smaller tasks. A good way to start your WBS (Work Breakdown Structure) is to ask yourself who is going to do what. Doing that gives you the first level of your WBS. Next break it down further as needed. Make sure that your WBS has everything that is in the scope before going to the next step.

 

Schedule

Each element of your WBS takes time to do. Some WBS-elements  have to be prepared, some have delivery time etc. Start your schedule by transferring all the WBS-elements to your scheduling program. Note that some scheduling programs call the WBS-elements “tasks”. Next assign a duration to each task. To get the total duration of the project you  have to put dependencies between certain tasks as needed. If you stick to these simple scheduling steps, you should have pretty good schedule.

 

Budget

Each task in your schedule has a cost associated with it. Some of these costs are obvious, some have to estimated. You get your budget by adding up the costs of individual tasks. 

 

Schedule and cost overruns are often caused by not having the discipline to take these essential  steps or not  having a complete scope. If your scope is not complete, there is no way your schedule and budget could be complete!

Can you perform an effective cost control if your budget is not good?

Taking the essential steps in determining your budget goes a long way.

20 thoughts on “Determining Your Project Budget”

  1. Dear Victor,
    It is a very interesting topic and found that it is helpful.If you dont mind please can you send me a copy of you excel format for project budget.

    Thanks,

    Ephrem(from Ethiopia)

    1. Dear Ephrem,
      Thank you for your comment. I do have an Excel spreadsheet for budgeting, but as explained in this blog post, budgeting is tied to your scope, WBS and schedule. Budgeting is not a stand alone activity.
      My upcoming eBook will include templates for scope, WBS, schedule and budget. Keep in touch. It should be available shortly.

  2. Hi Shakir,
    How are you? Long time.
    I will contact you direct to consult you on setting up your preliminary budget worksheet.

  3. Victor ,
    Thank you for the useful tips. I would appreciate if you could send me the format of of the Excel sheet for preliminary budget.
    Kind Regards
     
    Shakir Ali Ismail PMP
     

  4. Dear Victor,
    Thank you very much for your informative articles. I went through them today for the first time and indeed they present useful information for project managers who need guidance on overcoming real world PM challenges.

  5. Hello David,

    thank you for your comment. It would be a pleasure for me to work with you on your church project. at the moment i am involved my self in several church projects.

    Can you be a bit more specific about the "previous presentations" and i will follow up on your request. 

  6. Hello Victor,
    thank you so much for this important information
    it is good to be reminded of key points in project management from time to time
    this is coming at a particularly strategic point in my life when we are about to embark on a big church project.
    i would be grateful if you can send me previous presentations you have done from time to time.
    i have studied the ones you place on your blog and they were so useful and interesting
    having done my prince 2 exams in 2010, i plan to do the practitioner and PMP this year by God's grace.
    have a wonderful week sir.
    kind regards,
    David

  7. Suhail, I have just mailed you the promised excel worksheet. Have a look at it and let me know if you have any furhter questions and or comments. I have made a note of your request to write a blog post on assigning resources to your schedule. I like this request, since the answer will show you how constraints on certain resources will influence your project budget. I have scheduled this blog post for sometime early next year.

  8. Dear victor ,
    Hope you are fine.
    You had communicated that you will e-mail me a spreadsheet
    template. Kindly do it.
    Thank you.
    suhail.

  9. Dear Suhail. Thank you for your detailed response. It is very clear from your response that all the points that you mentioned have a cost assigned to them that is either labor, management, material or equipment as is usual the case with construction projects. Your company uses a mix of own supplies and contractor servies. As mentioned before, I use a spreadsheet to determine the budget. Using Excel is easier than using MS Project because you set up the workbook to meet your specific needs. In MS Project you are bound to the rules of MS Project. So I will use Excel to help you determine your budget. I have an Excel template that I use for this. It calculates the cost for labor, supervision/management, material and equipment for each task (WBS element) and adds up the individual costs to give the project budget. This spreadsheet will easily handle the way your company works. I will prepare an example of my spreadsheet and email it to you. You can then fill in your input, mail it back to me for review and I will help you determine your project budget. Good going.

  10. Victor ,
    I am slightly  unclear on resources front . My organisation executes work in following way.
    1. All key construction material is purchased directly.
    2. The sub- contractors execute some work packages on item rate basis including all men and machinery.
    3.Some items are executed  100%  including material and labor 
    on item rate basis.
    4. Some materials are supplied by sub-contractors.
    5.Managers, technical and line managers , other staff are full time, getting wages on monthly basis.The company charges 
    establishment cost including wages , other cost, at a fixed rate on total cost of project and there is a pattern for cash flow.
     
    6. Taxes are loaded to project cost separately.
    How should i proceed with resources?
    Suhail .
     

  11. Suhail, I received your MSP file for your project. I have to say that you are much further than I thought, since you already have a schedule. So we can skip the scoping and WBS steps for this discussion.

    Your question was how to estimate costs using you MS Project file. Answer: your schedule has the duration and resources for each task. all you have to do now is to multiply the duration with the resource rates to give you the cost per task. Do not forget to add any material and/or equiment that is needed to complete certain tasks. After you have estimated the cost for each task, you add them up to give you the project budget. 

    I do the estimating and determining the budget in  a separate spread sheet. I find that easier.

    Give it a try and resend me the updated file. I am here to help you until you have your budget.

  12. Hi Suhail, Thank you for your question. Determining your budget is indeed a stepwise process. I will take you through the steps for your proposed building project. First you need a scope describing what kind of building you have to build. Based on that start setting up your WBS. Once you have something on those two steps, email them to me and I will take you through all the steps. It will be my pleasure doing that. Going through the steps will also take you through assigning resources (in MSP for instance) which is your second question. After we reach to your project budget, we will have a closer look at your third question. Nice questions.

  13. 1. My question is budget relevant . Kindly explain step wise as to how we estimate cost and then budget while doing same with MS Project  with special reference to construction activity like buildings.
    2.Also would like to have a blog from you  for Resource assigning of different types again in MS Project.
    3.The project management seems little difficult while software
    tools are applied as certain barriers /hidden points slow down the pace. I would like to do at least one small project fully 
    that could set pace for doing more.How to do that?Please advise.
    Thank you.

  14. Wale,
    Thank you for your appreciation and very interesting comment.
    What you are describing here is part of determining your scope (PMBok: progressive elaboration).
    What I am describing is the approved scope ("get a complete scope before proceeding to the next steps").
    Once you have finished your itterations and the scpoe has been set, there should not be any more itterations, except for approved scope changes.
    Also keep in mind that the budget should be determined by your scope and not the other way around.
    Thank you for describing a situation that sometimes happens.

  15. Great article. I have a question or a comment. What happens if you then realise that the project budget is more than the money you have and you have to reduce the scope if the project is ever going to happen successfully? The progression should be like a cycle; Scope => WBS => Schedule=>Budget=>Scope …
    My point is, scoping itself  is itiratively determined and budgeting is part of that itiration.
     

  16.  Ifound it very useful. Truly apt and very simple nerration. Easy to understand and to  the point. Thanks for good job.

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