How to Budget for a Project Proposal

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When you submit a project proposal, it’s important to break it down into manageable goals. Each goal should be measurable, and each metric should reflect the success of your project. You want to make sure your project proposal is worthy of your clients, and that means knowing the budget limitations of your proposed solution. Knowing the budget for a given proposal will help you know what kind of value proposition is necessary to win over potential clients.

How to Budget for a Project Proposal

A proposal budget is similar to a project budget, but with a very different goal.

project budget is meant to guide you step-by-step throughout the project phases, and is meant to be changed and adapted (within limits, of course) to what happens during the project itself.

proposal budget instead aims to convince the evaluator that reads your proposal that you have a solid grasp of your plan and that you are worthy of being trusted with funding.

Granted, if the budget you build in the proposal phase is carefully put together and everything goes according to plan, you will end up using that directly as your project budget, but for the purposes of this article, let’s just stick to the proposal phase.

(For more on how to create a project budget, this article has all the info you need.)

So, how do you convince an evaluator that your idea will work?

First, you need to explain your project and process well in the narrative of your proposal. This is key to doing a presentation to management.

Second, you need to provide solid justification for the costs you will incur in each phase. Not only a solid justification, actually, but also a synthetic one.

In a nutshell: the evaluator needs to be able to read a one-to-two-page document and feel reassured enough to give you the £600k you need. In this article, I will show you exactly how to do that.

Step 1: Build a Gantt Chart

Gantt charts are loved and hated. It is undeniable, however, that they are the clearest overview you can get of a project in its entirety.

If you’re trying to convince the evaluator, then plot every work package and task on a Gantt chart and provide him or her with a clear picture of what will happen when. This will also tell them that you have thought that part out carefully.

The Gantt chart is one of the documents every project needs — but for now, at this point in the work, you won’t need to complete every one of those in detail.

Step 2: Add Person-Days Per Company

This is a core point. In order to estimate costs well, you first need to estimate the amount of work you need to put into each activity you have planned.

Not only that: you need to estimate who will do the work. I don’t mean who personally (name and surname), I mean what type of person or role will work on each task.

Is it developers? Is it marketers? Is it researchers? Each one has a different hourly rate and a different pace of work.

Plan your person-days accordingly. If you are part of a consortium, remember to separate these estimates per company, as you will also need to present the budget broken down per company. In the example below, Almira has been allocated 656 person-days for work package 1.

Example chart of work packages and tasks
There are more examples in Edoardo’s book, Writing Proposals: A Handbook of What Makes your Project Right for Funding

Step 3: Estimate Labour Costs

Once you have the duration and the person-days or hours for each project task, it’s time to write down how much their work would cost.

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To do this, you simply need to multiply the hourly or daily rate of each category of personnel in each company by the amount of days/hours they will be working.

If you want, you can also work with a weighted average, your call. As for the daily rate, if you are not familiar on how to calculate it, take a look at the end of the article as I’ve included a brief how-to for you.

In the example below, Almira’s 656 person-days have been broken down into four staff categories with four daily rates.

Multiplying daily rates by person days per category and summing the four totals gives the budget allocation for Almira for WP1 (540,25*122 + 489*255 + 262*255 + 125*24 = 260.415,50).

Estimate Labor Budget chart

Step 4: Add Subcontracting and Travel Costs

Subcontracting and travel costs are the two other categories of costs you need to take care of. You can add a third category “other” to use for whatever costs are still left out (e.g. purchasing specific equipment).

For Travel Costs, multiply the number of travelers by the cost of a return ticket to their destination. Slightly overestimating the costs is a good idea. After you have that, add a daily allowance for each traveler.

If you don’t have estimates for daily allowances you can refer to the official ones used for the OECD staff (available here). Remember to note what work package each travel is grouped under.

For subcontracting you merely need to indicate who you will hire, in what work package and for what.

Step 5: Bring It All Together

As mentioned in the beginning, presenting everything in a clear and simple way is the number one requirement of a good budget.

You’re combining resource management, schedule management and project financial management (important project management Knowledge Areas) to prepare a package for your proposal that no one will be able to resist!

So how does this budget information look in your proposal? Below is an example of how it all comes together.

This is taken from Edoardo’s book: Writing Proposals: a handbook of what makes your project right for funding. All company names are made up.

Project Proposal Budget Sample

Here’s an example of a proposal budget.

Our Consortium proposes a total price of € 2,223,471,26 (19% VAT excluded) for this project, distributed as follows:

  • Staff Costs: € 897.231,26
  • Subcontracts: € 260,00
  • Travel Costs: € 980,00
  • Other costs: € 000,00

The tables below provide a further breakdown of the budget. (WP stands for ‘work package’ in the tables below.)

Overview

The table below shows the overview. This is what you’d put at the beginning of your project proposal document to show the overall costs at a glance.

Table showing sample budget overview

Staff Costs

Here’s the worked example table of the staff costs. For each work package (which would be detailed elsewhere in the proposal documentation), we have said which individual and company would be incurring what cost.

Then the staff costs per work package are totaled across the line, and then the total per work package is summed at the bottom.

Remember, this table is just staff costs, not the overall cost of the work package.

staff costs table

Subcontracting

We also need to include detail of subcontracting costs, if your proposal relies on other parties to complete the work. In the example below, the table shows the partner, the work package they will be involved in, the total cost for that element and then what the cost is for.

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Subcontracting costs include things like external consultancy fees, survey agency payments, any fees related to contractors using special materials, a creative team and so on.

Table of subcontractor costs

Travel Budget

All partners except Lerei will be sending 2 people to each meeting. 9 meetings have been planned, totaling 18 travelers per partner (9 for Lerei).

We can show the travel budget in another table. The example travel budget for this project is shown in the table below. It sets out the partner, the work package where the travel costs will be incurred, the cost per traveler and the number of people who will be traveling at that time. There is also the total cost and the description.

Travel costs are generally people going to meetings. The more you can demonstrate your expertise in running a virtual team, the lower you can make these costs (although they may be offset by some extra tech or licenses required for remote working software).

Table of travel costs

Other Costs

The listed cost of €25,000 is for the purchase of a specific accounting software package for WP1.

Make sure you record any other costs that don’t fit neatly into the categories above. All these tables are going to be in the back of your proposal documentation as an appendix, so there should be plenty of space for you to include everything you need. This is also important for transparency.

Timing

The picture below outlines the timing of the project throughout the 41 planned weeks as well as the deliverables throughout the project.

Timing of project

This is a worked example of a Gantt chart for this example project. Your timings are obviously going to be different, but you can see that the tasks are listed per work package with a number of weeks duration clearly marked.

The Gantt chart is relatively high level and for the purposes of communication rather than for project tracking and monitoring.

How To Create a Project Budget

As noted above, there are many components necessary to build a budget, including direct and indirect costs, fixed and variable costs, labor and materials, travel, equipment and space, licenses and whatever else may impact your project expenses.

To meet all the financial needs of your project, a project budget must be created thoroughly, not missing any aspect that requires funding. To do this, we’ve outlined seven essential steps toward creating and managing your project budget:

1. Use Historical Data

Your project is likely not the first to try and accomplish a specific objective or goal. Looking back at similar projects and their budgets is a great way to get a headstart on building your budget.

2. Reference Lessons Learned

To further elaborate on historical data, you can learn from their successes and mistakes. It provides a clear path that leads to more accurate estimates. You can even learn about how they responded to changes and kept their budget under control. Here’s a lessons learned template if you need to start tracking those findings in your organization.

3. Leverage Your Experts

Another resource to build a project budget is to tap those who have experience and knowledge—be they mentors, other project managers or experts in the field. Reaching out to those who have created budgets can help you stay on track and avoid unnecessary pitfalls.

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4. Confirm Accuracy

Once you have your budget, you’re not done. You want to take a look at it and make sure your figures are accurate. During the project is not the time to find a typo. You can also seek those experts and other project team members to check the budget and make sure it’s right.

5. Baseline and Re-Baseline the Budget

Your project budget is the baseline by which you’ll measure your project’s progress once it has started. It is a tool to gauge the variance of the project. But, as stated above, you’ll want to re-baseline as changes occur in your project. Once the change control board approves any change you need to re-baseline.

Project management software makes setting a baseline simple. Take ProjectManager, all you have to do is open up the settings on your Gantt and select set a baseline. Now you have the planned effort saved and you can compare it to your actual effort as you execute the project. You can reset the baseline as many times as you need during the project to always be able to measure your project variance instantly. Try our tool for free today. 

6. Update in Real Time

Speaking of changes, the sooner you know about them, the better. If your project planning software isn’t cloud-based and updating as soon as your team changes its status, then you’re wasting valuable and expensive time.

7. Get on Track

The importance of having a project management software that tracks in real time, like ProjectManager, is that it gives you the information you need to get back on track sooner rather than later. Things change and projects go off track all the time. It’s the projects that get back on track faster that are successful.

If you manage your project expenses using these building blocks you’re going to have a sound foundation for your project’s success.

Project Budget Example

To further illustrate how a project budget is created, let’s pretend we’re making an app. The first thing you’ll need to figure out is the costs for labor and materials. You’ll need programmers, designers, content developers a dev team, etc. It helps list all the tasks and assign the team to them—a hallmark of good task management. This way every penny is accounted for.

With the tasks broken down for the project and your team in place, you’ll next need to look into whatever materials will be needed. Will they need laptops, other devices and equipment? This must be accounted for.

Now note other line items. There might be travel expenses and renting space to house the team. Then there are fixed items that are true for any project. These are things where the cost is set and will not change over the course of the project. You’ll also want a column for any miscellaneous costs that don’t fit elsewhere in the budget.

Your budget must have a planned versus actual column. When you’re making that app you’ve likely to pivot and that is going to impact the budget. These columns are a way to track the expenditure to make sure you’re staying on budget.

Conclusion

Budgeting is an important part of business. It allows you to plan and budget for your projects, ensuring that you have enough money to cover your needs and achieve your goals. By following these tips, you can create a budget that is both reasonable and manageable.

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