Project budget management means administering and overseeing the finances related to business projects. This is the most direct, even obvious answer. But to get a wider view let’s take a step back and ask ourself a question what is a project budget?
It’s the combined costs of all activities, workforce, tasks, and materials which will lead you to the final project. That’s why you should carefully plan your project before diving into the finances. How to do it properly? Good project management tools will definitely help.
Project budget management – how to do it properly?
It’s important to have a project budget because this will give you a good understanding of how things (and spendings!) are moving forward. You’ll have control of all the activities and immediately know when the costs will be growing too high. This knowledge will definitely support your decisions through the whole process and make you wiser while planning the next projects.
To conduct project budget management define the scope of the project
How can you count your project budget without knowing the details of your project? This is where defining the scope of the project comes with help. Defining the scope of a project means documenting a list of specific project goals, team members, milestones, tasks, deliverables, features, functions and deadlines. It will also include any major project objectives, deliverables, and goals to help measure success. Lot’s of PM tools will help you with organizing all this stuff. One of them is Firmbee.
Okay, you’ve got your plan so how to start counting the money? Estimation techniques can help. A brief summary of them can be found below. Decide which one is proper for you & dig deeper into the topic.
This is a technique of estimating individual tasks and then combining them into an overall project estimate. By this time you should already know which team member is responsibe for what (if not – check out our solution), you can ask each person performing a task to provide you with the estimates. They are definitely in a better position to estimate a task that they will be working on. After you have a cost estimation of work at the lowest possible level of detail, aggregate them in order to arrive at summary totals.
Here, groups of experienced managers or external experts try to estimate the budget of the project. You can also use information from a previous, similar project. This technique is often used in the very early phases of a project when not much information is available. Unlike the bottom-up estimation, this time you will estimate the duration of deliverables and/or major deliverables.
The phrase analogous estimating comes from the fact that you use a similar past project to estimate the duration or cost of your current project. It should be a mix of historical information and expert judgment. That’s why it’s so important to track your project budget each time you deliver something.
Parametric estimating is a statistics-based technique which helps you calculate the expected amount of financial resources or time that is required to finish a project. With parametric estimation, there is going to be some more math needed, but just some basic skills, so don’t be terrified! Look at this example:
Let’s say that your project includes interviewing 300 people. Each interview contains 10 multiple-choice questions, and past experience has shown that they take 20 minutes to administer. The total effort for this task will be:
Nr of interviews × 20 minutes = 6000 minutes = 50 hours
Now, from your past experience check how much an hour of workforce costs. Done!
Automate the process
Remember, you don’t have to do everything by yourself using notes or calculators. Project management systems can calculate the budget for you based on the scope of the project and help you store and organize the information. Firmbees finance module lets you set a project budget, calculate employee costs, track your income and expenses during the whole process. After the project is finished, the information is automatically rolled over into invoices. Also, information about what you owe others is displayed.
Check out Firmbee and track the profitability of your projects:
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