DEVELOPING AND MANAGING PROJECT BUDGETS

All projects need some sort of funding, and budgets provide the basis for managing funds. Project managers must be well versed in creating budgets, making budgetary trade-offs, and tracking budgetary expenses.

A budget is a financial report that documents income and expenses over time. After reviewing other project documentation, such as scope statements, schedules, cost estimates, and resource information, the project team must develop a budget for the project. It is important to understand how the specific organization does budgeting when creating the project budget. Budgets can be developed using a top-down or bottom-up approach, similar to that used in developing cost estimates.

- A bottom-up budget is based on estimating individual work items and summing them to get a project total.

- A top-down budget uses the actual budget of a previous, similar project as the basis for estimating the budget of the current project.

It is important to get input from the project team in developing budgets. Human resources are a major part of most project budgets. Funds for personnel must include compensation, benefits, overhead, overtime, and so on. Fully loaded amounts include compensation, benefits, and overhead.

Projects often involve several trade-offs that must be made during the course of the project. For example, many projects use goods and services from suppliers, but the specific goods and suppliers may not be known when the budget is created. The project manager can include additional funds in the budget to provide some flexibility.

It is very important to track a project's budgetary expenses against the plan and to understand the entire organization's budget. Organizations often take budgets very seriously. For example, a company may limit travel expenses to reduce overall costs, and there may not be funds available if a project team is already over its travel budget.

Take budgeting seriously. Develop a realistic budget and follow it as carefully as possible.