In order to succeed in any field, you need to have a good understanding of what you’re asking for. When it comes to making your project budget work, that means understanding the costs and benefits of each step in your project. Once you know what you can and cannot accept, it’s on to creating a plan that will allow you to hit your goals while still meeting your budget.
Budgeting Techniques for Project Management
Project management budgeting is the action of determining the total funds that are allocated for a specific project. The budget is usually estimated by the project manager along with the project management team and consists of all the projected costs for the upcoming project. The main challenge in creating a realistic budget is understanding and correctly estimating individual costs for all the elements that go into the project.
Some of the things that need to be determined when calculating a project’s budget are:
- How the project’s costs would be continuously tracked until its completion
- How the costs are spread out across multiple project phases and milestones
- What tools would be used to store and report cost data
- What the plan is for situations in which the project is either under or over budget
- How the project’s budget fits into the parent organization’s overall strategy
Given below are some of the most noteworthy project management techniques that are commonly used in the industry right now.
1. Analogous estimating
This method of estimating a budget consists of analyzing an already completed project with a similar scope to the current one and using its budgeting calculations, adjusted for differences in scope, quality, term of execution or any other relevant parameters. It is not always a completely accurate method, but it can be an appropriate method in situations when there is limited information regarding the upcoming project and a quick estimate is required. This method is usually quicker and less costly than others, but can only be used by companies that have had similar projects in the past.
2. Parametric estimating
This estimating method consists of using historical data and other related variables for estimating the project’s scope, duration and total costs. This is usually achieved by researching past data, calculating various per-unit costs for various aspects that are common to the current project and adjusting the proportions to fit the scope of the new project. The accuracy of this method is usually proportional to the quality and relevancy of the historical data it is based on.
3. Top-down method
This method consists of looking at the project budget in its entirety and then calculating individual costs for each of the required processes. Each part of the overall project is analyzed, with its exact costs calculated and then compared to the initial estimates for each. Based on the results, project managers can see how cost-efficient each process is and may decide to reduce the scope of some parts of the project, so it fits within its total allocated budget.
4. Bottom-up method
Unlike the top-down method, which divides the project into multiple processes and calculates the individual costs for each, by using the bottom-up method the project manager attempts to directly generate a total project budget, with the help of their project management team. As a general rule for this method, the budget estimation’s accuracy is usually proportional to the accuracy of the information and expert advice received during the budgeting period.
5. Three-point estimate
This method uses three different calculations to estimate a budget: the most expensive scenario, the most cost-effective scenario and the scenario that’s most likely to occur. By using these figures you can roughly estimate there required budget, but also assess some of the risks involved in the project.
6. Earned value analysis
This method is a way of estimating the accuracy of a project’s budget during the execution of the project. It consists of constantly comparing the costs for each phase of the project with the ones that were previously estimated, typically by using one of the four previously-mentioned methods.
Tips for accurate project management budgeting
Consider these tips when determining a project’s budget:
- Focus on the organization’s needs. When creating a budget for a particular project, it is essential to remember that the ultimate goal of any project is to help its parent organization reach its goals. By knowing exactly how valuable a project is to the organization you can improve your odds of accurately determining its budget.
- Keep open communication with the stakeholders. Throughout the project’s budgeting and execution phases, you must constantly communicate with the people who stand to benefit from its successful completion. Depending on their priorities and needs, you can determine if the project is correctly budgeted or if it needs adjustments in scope and budget.
- Adapt to changing parameters. Various unforeseen events and situations may occur from the time a project is budgeted until its execution. When creating a budget, you need to plan for this eventuality and have enough flexibility to adapt to any change, internal or external.
Importance of budget in project management
- Budgeting is an essential part of getting a project approved and secure project funding.
- Well-planned budgets become the foundation for project cost control.
- Project budgets have direct relation with the financial viability of an organization.
Project budget management is therefore a key skill that project managers need to be equipped with. It consists of steps that are designed to help the project manager manage the project effectively because if a project has got a well-defined budget as stated above then the scope, objectives, and goals of the project will also be well defined and clear for the project manager.
Some of the steps in creating a simple project budget are as follows.
- Budget estimate: This step requires creating a budget using the income and expenditure data available from all the cost centers or departments. Costs that are not available will have to be estimated using forecasting techniques discussed below.
- Milestones, tasks, phase: To make the project budget as simple as possible it is important to break it down into separate tasks, milestones, or phases as applicable. Breaking down the project into manageable milestones helps prioritize and focus on the most important task, thereby increasing the chances of remaining within the budgeted limits.
- Add the estimates: Once the cost estimation is done and the project divided into tasks or phases, all of the estimates relating to different tasks and phases should be summed up to arrive at the final figure for the budget.
- Add contingency expenditure: At the time of estimating the budget, the complete scope of the project isn’t usually clear, and therefore it is better to allocate some amount for contingency expenditure. It is a norm to keep this figure at least 10% of the total budget.
How to estimate a project budget?
A number of forecasting techniques can be used to estimate a budget. Some of the techniques have been briefly discussed below.
Bottom-up estimation
The bottom-up estimation is the most commonly used method for creating project budgets. It simply requires summing up all of the costs allocated to the different activities in the project.
The sum of all the costs is the total project cost. Bottom-up estimation is particularly useful when every minute aspect of the project is known.
Since this technique accounts for every bit and aspect of the project, it takes a considerable amount of time to draw up a budget using the bottom-up estimation.
It is important to understand that budgeting is a continuous process, budgets grow and need to be updated as the project continues, and usually, as the project moves into its later stages and becomes more defined and the goals become clearer, the budget too becomes much more detailed.
Therefore there is a need to continually adjust the budget as the scope becomes clearer.
Top-down estimation
As the name suggests, this approach is the exact opposite of the first technique. The top-down estimation approach takes the sum total or the final budgeted figure and then breaks it up and allocates it to all the different activities, tasks, and phases of the project.
Top down approach is useful at the consideration stage where there is a need to decide whether the project should be accepted or not, while keeping the budget as a limiting factor.
The drawback of this approach is that it leaves very little room for any change, the budget is very much set in stone with this approach, every project experiences an increase in scope and planned tasks as it proceeds and the top-down approach discourages frequent changes to the plan and revisions in the budget.
It is therefore ideal for projects of recurring nature where the nature and scope of the project are fully understood.
Analogous estimation
This approach is suitable for experienced project managers who have a good idea of what the nature and scope of a project is and can therefore quickly draw up a budget based on similar past experiences.
An experienced project manager can use past data and experience to estimate the cost of a similar project, for instance, if a project manager has worked on a project to construct a mile-long bridge, then estimating a budget for a two-mile-long bridge under similar conditions won’t be too difficult.
The drawback of this technique is that it is only useful for projects for which a precedent exists, new and unique projects cannot effectively use this approach, similarly inexperienced project managers may find it difficult to apply this technique.
Furthermore, analogous estimation is not a very accurate technique because it relies on drawing parallels between similar projects and there are many aspects of costs that change over a period due to inflation, wage rise, etc.
Parametric estimation
This can be considered as an improvement upon the analogous approach. The parametric approach focuses on gathering data points from similar projects and then applying them on the project at hand.
For instance, a project manager can use the material cost and labor cost from an ongoing project, training cost estimates from a past project, and capital expenditure estimates from yet another project with similar outlay and activities.
The objective of parametric estimation is to make the analogous estimation technique more accurate with the inclusion of data sets that suit the current project from many different projects, in order to increase the overall relevance of costs.
It uses statistics, historical records and variables to create a budget quickly compared to a bottom up approach but similar in accuracy.
The drawback is that finding similar and relevant data sets may be difficult and time-consuming in and of itself and this technique too only applies to projects for which similar projects already exist.
Three-point estimation
The three-point approach is a scenario-based approach that includes the best, worst, and most likely scenarios and takes their weighted average. This approach minimizes the risk of exceeding the budget and therefore allows project managers to deliver the project within the budgeted estimates. Perhaps the only drawback of this approach is that it is a time-consuming approach.
Budgeting in project management, therefore, can be considered as a key activity that gives the project its direction, a good project budget can not only help complete the project efficiently but it can also make things much easier for the project manager, thereby allowing them to focus on other core activities of the project.
Project management tools
Project management tools and techniques that really work; that’s the problem statement. We live in a world where we are bombarded with different scenarios and projects in our daily work life. Eventually, these variables affect us to the extent that productivity suffers at multiple levels. We simply can’t wrap our heads around such complexities, even if we have a proper strategy or a leader with an effective mindset that can help us get through that ordeal.
These strategies and tools are properly necessary so that we can get the job done without spending more and more of our revenue and manpower, because if we spend that much energy on work activities without a proper direction in mind then we are in for serious trouble down the road.
In this brief article, we will help you study some effective tools and techniques which can be used in different fields of the organizational culture that facilitate you in creating an efficient strategy and successfully delivering a top-notch project.
When it comes to project management tools and techniques, you don’t have just one technique or foolproof tool that you can use in every project of every organization. Your decision about which one to choose should arise from the project specifics that the brief contained, the complexity level that the project boasts, the nature and qualification of the team involved in the development, and countless other factors.
Most of the project management tools and techniques can be used in various fields, but there are techniques that are natively designed for specific activities and these activities or projects really can’t function properly if they don’t have the foundation of those tools.
Project Management Tools
While the techniques are important, you also need specific tools that you can use to properly implement during the development page and achieve your desired results. Here is a list of tools that you can use during project management.
1. Organizing Workflow & Planning
The most important part and the literal start of any project is the planning stage which is basically the core of the whole process. This step defines who a project will be performed and how will it take shape so that the desired quality can be ensured and achieved in the future.
Large companies tend to use comprehensive solutions like MS Project that are designed for larger teams. For smaller teams though, it’s a different story. There are a lot of different alternatives on the market which you can equip yourself with that don’t have all of the fancy features of those comprehensive solutions, but they still get the job done with their planning and roadmap features, useful for visualizing future project progress.
2. Communication
As it is a major factor in almost all of the techniques and methodologies in not just the project management context but also in other fields of the market, communication within a project team needs to be frequent and effective. You can use emails for all of the formal stuff, but you can also use applications like Skype and Slack for impromptu conversations among team members which will increase team collaboration resulting in positive growth in productivity.
3. Scheduling and Time Management
Money is the top factor in the development of a project or anything really. And while in certain projects you are allowed to spend more resources and time quite thoughtlessly, you have to be careful in the other projects where you spend the revenue.
This is because of the limited resources and time, that the project has from the start and also because you should not spend valuable resources on teams and equipment that might not even be available when you are envisioning the work to be done. So, you should always schedule ahead and clarify/ confirm the dates with all of the team members before spending all of the revenue on an empty room full of resources but no manpower.
nTask provides you with a scheduler and a time management tool that can keep track of time spent on specific tasks by the individual team members and all of the relevant time stamps inputted by the staff, so you can schedule accordingly. Utilizing these project management tools and techniques can be a lifesaver.
Conclusion
Project budgeting can be a difficult task, but with the right tools and careful planning, it can be a lot easier. By estimating the project cost and creating a timeline, you can ensure that your budget is accurate and achievable. Additionally, using the right tools such as projection software can help you save time and money while conducting your project. If you have any questions or concerns about your budgeting process, don’t hesitate to contact us!