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A Project Budget is a time-phased periodic spreadsheet where each row represents an element of project work and each column represents a calendar time period (such as a month).
When to use
Virtually all large projects have a project budget. This allows the finance department to plan what financial resources will be required to conduct the project work and when they will be required. Small projects often have a project budget if they have a significant amount of purchased items. This helps the project management team, purchasing, and finance plan for the project activity. Small projects without a significant amount of purchased items (essentially a project with in-house labor only) often do not require a project budget. The labor is paid for as part of the various department overhead costs. In this case, the project is managed just with a schedule, task list, and team list.
- List all project activities that require effort by project team members or suppliers.
- Estimate the amount of effort for each activity (typically labor hours or supplier quotes).
- Convert the effort estimate into an amount of money (based upon labor rate or value from the supplier quote).
- Create a spreadsheet with a list of project activities in the rows and a timeline across the columns.
- Place the amount of money required to do the work for each activity in the appropriate time column.
- Sum the total for each column to create the estimate for how much money the project will spend during that time period.
- Create a cumulative sum that totals how much money the project will spend from its start until that time period.
Hints & tips
- Ensure you have identified and budgeted all the activities that will be charged to the project – even if the effort is not done by individuals in your department.
- If the project budget is fixed or limited and scope is variable – allocate a budget amount to each phase then prioritize the work for that phase. Stop work on that phase when the budget is expended and go to the next phase.
- To simplify accounting on long projects, if project budget is funded by fiscal year – rather than the entire project at one time – try to set the end of a phase at the end of each fiscal year.
- If a project spends money in multiple countries, ensure that it accounts for the exchange rate.
- The date for a purchased item is normally the date the item is received, although finance may direct you to use either the date the purchase order is placed or the date the bill is paid.
- If an activity spans multiple time periods, either spread the budgeted money based upon how much you think will be spent each time period or just spread it evenly between all periods.
- The amount of money included for a budget reserve is either embedded as part of a task estimate or is allocated to a separate reserve task that is scheduled in the project.
- Budget Definition: “The approved estimate for the project or any work breakdown structure component or any scheduled activity.” PMBOK® Guide
This definition is taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute, Inc., 2017.
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PMI, PMP and PMBOK are registered marks of the Project Management Institute, Inc.