Budget forecasting tools are really important for small businesses especially when they’re just starting to grow. A budget is basically an estimate of how much income a business hopes to make and can also include an estimate of expenses a business expects. If you want your project to succeed, you need to make sure that it gets funded. It’s one of the most critical elements of your project but how can you do it? How do you ask people to fund your project and get them excited about supporting it?
Project Management Budgeting Tools
Project managers use budgeting tools and techniques to create financial data that ensure a project is funded adequately and can be completed within the allotted budget. Using models, templates and calculators, an effective project manager estimates accurately, monitors carefully and manages risk appropriately. These tools help the project manager effectively communicate the project budget status to the project sponsor, who typically provides the funding, throughout the project life cycle.
- The Project Management Institute publishes the “Project Management Body of Knowledge,” which defines how to calculate the budget at completion, budgeted cost of work performed and budgeted cost of work scheduled. These standard calculations help the project manager monitor project progress, stay within the budget and report the project’s status using universally recognized terms.
- An analogous budget tool uses the actual costs of a previous project to estimate the cost of a new project. As long as the two projects are similar in nature, this technique works well. This approach can be used by less experienced project managers. However, using this technique to estimate the budget requirements for innovative and complex projects may be less accurate and unreliable.
- A parametric budgeting tool uses historical data and other variables to calculate an estimate of project parameters, such as scope, cost and duration. For example, to calculate the cost estimate, multiply the planned hours of work by the historical cost per hour. Assuming that your historical data are relevant, this technique typically produces high levels of accuracy. Once you’ve figured out the estimated costs of activities required to complete your project, identify the risks associated with each one. By foreseeing possible overtime hours, price changes and extra charges, you can prepare a reasonable budget.
- Using a top-down budgeting tool, you look at the total project budget and estimate the costs for each process. By examining each activity needed to complete the project, you can then assess which activities to decrease, if needed, to meet the budget. This approach tends to discourage participatory-style management. The project manager takes all the responsibility for decision-making.
- Using a bottom-up budgeting approach, the project team brainstorms and discusses how to generate the project budget. The quality of the result depends on the quality of inputs. Getting expert advice during this process helps improve the accuracy of the budget. For example, run a meeting and invite past project managers. Use free project management budget software, such as SmartSheet, Project Budget Manager or AceProject, to draft and debate project expenses. Additionally, use the Project Evaluation and Review Technique, developed by the U.S. Navy, to analyze tasks and determine the critical tasks needed to complete the project.
Project Management Budgeting Methods
These are six of the most popular ways of determining the appropriate budget for a project:
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.
Seven Essential Features for Cost Management within Project Management
Cost Estimation is the first and foremost project cost management tool. Without the ability to forecast the price of a complete project, the project manager cannot get a clear scope of the budget strategy. There is more than one type of cost estimation in project management.
You can use fixed, variable, direct, and indirect cost estimation. The schedule and other factors can change, so it’s important to update price estimates so as not to lose the correct price range of the whole project. The software that doesn’t have powerful estimation capabilities, like portfolio history, won’t be of much use.
Budgeting is the next step after creating a cost estimation for your project management plan. The solution you choose most definitely should allow you to approve the project’s budget. The best apps and platforms allow for scheduling and sending reports on expenses.
PPM Express also enables you to set budget limits based on time or cost, so you can track and adjust the project as it progresses. This is a way to get regular updates on a project’s expenses and also to track workflow direction.
Performance measuring is an extremely important part of the concise budget strategy. Measuring long-term performance requires the company to construct a comprehensive performance assessment that measures the value it has created and estimates its ability to create more. Factors that drive value in a company are basically a set of metrics that can also gauge a company’s ability to create economic value in the future and the risks that might prevent it from doing so.
Using these metrics is essential to understand the impact of factors outside management’s control: for example, the case of an oil company whose improving profitability comes from rising oil prices rather than better exploration techniques or of a bank whose stock price rises because of changing rates, not increased efficiencies. To use any metric that assesses how a company is doing, you must strip out the impact of such factors.
The easiest way to keep track of performance is by having a dashboard that updates data in real-time and has a cost baseline, planned and actual project costs, schedule variance, and the percentage of completion built-in. Improve your business processes with tools to track and control your budget plans, manage multiple portfolios, and factor invaluable insights into the overall performance of your project delivery.
Easy reporting is the key to project smooth continuous work, so you need a tool with a variety of easy reporting options. You are living in 2018, so if you are building a report that requires manual data insertion or extra steps to incorporate data from outside the system – choose again.
Does your team report their progress via Microsoft Planner or Atlassian JIRA? PPM Express is a tool that not only “plays well” with other reporting tools but, in conjunction with Microsoft Office Project Online, allows for both – a quick look and wide layout on each project, each portfolio, and every separate aspect of it. Having instant insights into your progress is a great advantage on the way to successful project management.
Securing the continuity and ease of data sharing and merging with Cloud technology is the key. It allows transparency across your enterprise and visibility, even with multiple projects to report progress on.
User-friendly interface and speed of deployment cost management is no picnic as it is; so, a user-friendly, intuitive interface tool is a must as well as the intuitive deployment. In fact, 24% of surveyed users in the US say ease of use is the most important element of a project management tool.
A user-friendly interface can increase productivity and minimize the margin of error. If you’re struggling to use your tool, you should probably look for another one. The adequately chosen toolkit enables automation of the configuration routine, allowing you to choose among ready-made configuration packages, create configurations of your own, and manage multiple groups and departments in minutes.
Affordability is very important for small businesses. Compact teams need functional cost management tools without a hundred-dollar price tag.
Fortunately, these days, you don’t have to get a space station dashboard out of your price range to get things done. The correct tool will help you increase productivity while reducing costs, while carefully balancing the benefits against the price of $3 per user.
Third-party integrations are very, very important these days. To date, there is practically no business running smoothly with one tool in the toolkit. Project cost management tools should offer seamless third-party integrations with the most used and effective tools on the market.
Best Budgeting Software
Best budgeting app overall
Mint is one of the most popular budgeting apps and for good reason. It is free to use, something rare among the best budgeting apps, and you get financial budgeting shared by 24 million users.
The app allows you to create a personalized budget and will then monitor your spending. It studies your spending habits and advises how to increase your savings. It will also check your subscriptions to ensure that you are not paying for services you do not need. With MintSights, you can set goals to reach financial milestones and build a stronger financial foundation. Once you connect your accounts, you can easily navigate between outstanding account balances, your monthly expenses versus spending, and even access your free credit score. Mint is compatible with not just banking accounts, but also your credit cards, loans, and investments. You can even file your IRS taxes and receive your refund through the app’s integrated TurboTax services.
Best budgeting app with digital envelopes
Cost: There is a free version with ads, or you can upgrade to an ad-free plan for $7 per month or $60 per year.
Goodbudget is a budgeting app that helps you create and stick to a budget. There is available debt tracking to keep you motivated and on track. It also helps with money management so you know exactly where your funds are and how they are performing. You will have to subscribe to Goodbudget, but once you do, you will have wide access to the app through both the web and multiple phones. This means that it is easy to share your account with others, like a spouse or family member. It helps you stay connected financially even if you are physically apart, helping to prevent miscommunications and financial mishaps. All transactions are synced to the cloud so you never have to worry about certain financial transactions going missing. Review pie charts and reports to track your spending, with generated reports to show your finances in greater detail. Digital envelopes help you categorize your finances into available funds with each envelope assigned to certain expenses. It is a visual way to improve your finances through the help of virtual tools.
Best budgeting app for investors
Cost: Personal Capital is free to use.
More than 2.8 million people utilize Personal Capital, and it is a portfolio tracker specifically designed to help with your investments, offering a unique digital approach to your personal finance. The app works with several different types of accounts, including your normal banking accounts, as well as investments, stocks, and retirement funds. The exclusive Retirement Planner tool helps you view your 401K, IRAs, and also your debt so you can have a complete, well-rounded portrait of your finances at the click of a button. The Cash Flow graph stacks your income versus your expenses for an overall financial snapshot that is easy to understand, plus there is an Investment Checkup tool that checks your investments, looking for ways to minimize risk while maximizing rewards. The Retirement Planner is an excellent option when you want to create and manage your retirement. You also have the option to join Personal Capital as an investment client so you can receive direct support from its financial advisors.
Best budgeting app for overspenders
Cost: There are three subscription plans, in addition to a basic plan with limited features for free.
|Type of plan||Cost|
|Lifetime One-Time Purchase||$79.99|
PocketGuard takes a different approach to budgeting, utilizing smart algorithms to manage and track your spending. It also monitors your bills, helping to ensure that you do not miss a payment and risk falling further into debt. There is a bill tracker and organizer available as soon as you link your bank accounts. Any subscriptions you have will be automatically flagged and built into your monthly budget. With the IN MY POCKET feature, the app will automatically calculate your monthly expenses and then advise you on what is left over to spend. It also can help you negotiate better interest rates on your existing accounts, helping you save those extra dollars. It is easy to identify what disposable income you have to spend when the app does all the calculating and reporting for you. You do not have to pay to use PocketGuard, although you will need to subscribe if you want to access all of the best.
Project budgeting is a key part of any business. By understanding how project budgeting works, making predictions about what will happen in the future, and utilizing predictive tools to make sure that your project stays on track, you can ensure that your business succeeds.