Ever heard of the saying “follow the money”? Project management budgeting is the key to successful projects and happy clients.
The definition of budgeting in project management is basically estimating how much a project will cost and then tracking billable expenses as you go. This requires a working knowledge of how long tasks take, what resources you need, and how much similar projects have cost in the past.
Keep reading for the what, why and how of budgeting your next project successfully!
Overview on Project Management Budgeting
Let’s start by answering “What is project budget management”?
Project management budgeting is when you figure out how much money you need to complete a project. This is either for your own business, or for your client projects.
The project manager is responsible for giving managers or clients an estimate for how much a project will cost. From there, you can figure out whether you need more time, materials or resources to complete the project to a high standard.
Project management budgeting uses tools and systems like:
- Time trackers to track budgets, targets and hourly retainers
- Reporting software to give feedback to client and team members as you go
- Risk analysis and expense scenarios based on other similar projects
- Working with the accounting team
- Getting clients to give their budget and matching it to your services
- Assigning the right team members according to their strengths and hourly rate
Importance of Budgeting in Project Management
The first thing clients will ask when they want you to manage a project?
“How much will it cost?”
All business endeavors require a significant amount of logistical planning. However, the project budget is the life blood. Without a clear idea of how much your clients can and will spend, projects will be less of a growth investment and more of a sinkhole.
Project budget tracking allows you to
- Give your clients an accurate estimate of costs
- Create invoices without any surprises or hidden costs for the client
- Figure out how many hours your client can afford
- Bring in third party contractors to help complete the work
- Pay for any software or materials you need to get the project done
6 Methods of Budgeting in Projecting Management
There are several approaches you can take to estimate a project budget. The method you choose will depend on factors like whether you’ve completed similar projects, your billable versus non-billable hours, and how much information you have about the scope of the project.
Analogous budgeting gives a budget estimation based on similar projects you have completed in the past. This is best for when someone needs a quick price gauge. An analogous estimate will give clients or team members a basic idea of costs, but will probably need to be updated along the way. If this is a unique project, you will probably need a different method for budgeting.
Like analogous budgeting, parametric budgeting helps estimate a budget based on similar projects. The difference is that the parametric method is a quantitative approach that takes various factors, prices and historical data from other projects and applies it to the current one. For example, a company might want to estimate the cost of installing new software. This would require parameters such as
- How many interfaces the company needs
- The fixed price of installation
- Hours historically needed for testing and revising
- Average number of days it usually takes for a software company to install their product
Parametric estimating gives a slightly more accurate budget based on historical data.
The top-down method of project budgeting is when you start with a total project budget. From there, you see how much you can allocate to each part given the scope of the project. This would be an appropriate method if the client has a set budget or you are working with a grant for example.
The bottom-up method is essentially the opposite of the top-down method. Instead of starting with the total allocated budget, you have a list of all the resources you need, the approximate price of each one, and then calculate the total budget based on what is needed. From there, you can re-analyze the scope of the project, or add more if there is money leftover.
This project budgeting method provides a well-rounded analysis. It takes the most expensive, the least expensive and the most likely budget scenarios. This requires a certain amount of data and risk analysis and gives clients a better idea of what to expect as the project progresses. For example, in the most expensive scenario you might include factors such as clients requesting multiple calls which count as billable time.
Earned Value Analysis
Earned value analysis is almost like an amalgamation of the other budgeting methods. Once the project manager gives an estimate and the client signs off on it, an earned value analysis keeps track of the budget at each stage. This helps keep costs as close to the estimate as possible by tracking hours, targets, and any unexpected expenses.
Tips for Accurate Project Management Budgeting
Successful project management budgeting requires planning, adaptation and open communication. Nobody wants to be blindsided by hidden costs! To ensure positive client relationships in your next project, try these tips when negotiating the budget.
Keep Open Communication With the Stakeholders
Clients pay good money to get a job done. They deserve to know how their budget is being spent! Projects can change over time, and therefore the original budget estimate may change over time. Keeping open communication both ways is the simplest way to keep everyone happy. If you are using a time tracking app like MinuteDock, you can even create a private client dashboard where they can check in on their project without taking up non-billable hours.
Adapt to Changing Situations
To get the work done to the best of your team’s ability, you might need to adapt as you go! Maybe someone thinks of a faster way to do something, or one stage of the project is taking longer than expected so you need to cut costs somewhere else.
Focus on The Organization's Needs
Whether the project budget is for you or for your clients, make sure you stick with the overall goals. Everybody wants to win, and keeping their needs at the front of your budget planning project management will build trust and rapport while you finish the project.
Track Budgets in Real Time
Time tracking is your secret weapon for staying on budget for each project. Using an app like MinuteDock lets you
- Set targets and budgets on a daily, weekly or monthly recurring basis - perfect for retainer agreements or agreed workloads
- Set up hourly targets for work so you can keep on track as your team works. You can also set budgets and dates to get your projects completed on time
- Watch budget progress updates instantly as you and your team track time, letting you & your team see their status at a glance.
Budgeting is crucial for project management. It ensures that you are completing projects efficiently and keeping clients happy- all the things a growing business should aim for!
Want to make project budgeting even easier? MinuteDock is designed for teams to help them track time, stick to budgets, and deliver exceptional projects for their clients on time, every time.