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Originally published on 10/19/2015 & Updated 7/29/2024
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As experienced project managers, you already know that projects are not static. Instead, they are constantly in flux and can change shape anytime. As a project progresses over time, its cost can quickly grow above the budget. And keeping track of your budget is paramount to a project’s success.
What is project budget management?
Project management budgeting is key in project management. By putting project budget planning at the top of your priority list and taking measures to stick with it, you ensure you come away with more than you started. Starting a project without creating a project budget usually ends with failure since the rule of thumb—in life in general—is that things always end up costing more than we thought!
What are the different project budget management methods?
- Three-point estimating uses past information to judge the best-case estimate, the most likely estimate, and the worst-case estimate of a project to determine the most likely outcome. Based on this figure, the project budget is then decided.
- Analogous estimating uses information from previous, very similar projects to guide the project budget. This technique is only good when little data is available, as getting an accurate analogous estimate can be difficult.
- Bottom-up budgeting involves dividing the costs of different parts of a project and adding them up to get an estimated budget.
- Top-down budgeting means estimating the project total and dividing that by the number of tasks, allocating an appropriate amount for each task.
- Parametric Estimation is a sophisticated budgeting method that combines industry data and knowledge from previous projects to reach a fairly accurate budget.
Now that we’ve defined some different types of budgeting methods, the question is:
How do you keep expenses under control?
4 tips to help you manage a project’s budget:
1. CONTINUOUSLY FORECAST
It’s simple: frequent budget oversight prevents a project from getting too out of hand. A project without frequent re-forecasting will likely end in disaster. Updating and managing an inherently turbulent budget is a necessity for any project. As the project manager, it’s up to you to discuss budget management in project management meetings. Talking to your team about upcoming spending can give you a realistic idea of your project's direction.
Consistent re-forecasting also enables your team to anticipate a project's progress and ensures that a project’s budget aligns with its anticipated completion date. Using project management budget tools such as Workamajig can help keep your project management budget tracking running smoothly.
2. ANTICIPATE SCOPE CHANGE
Any agency that has been in business for a long time has experienced the horrors of scope creep. The scenario is usually similar: a project with a new client is going well, but over time, it grows bigger and bigger while your price remains the same.
Typically, this results in two outcomes:
- The client thinks that the extra work your team puts in is included in the original scope of work.
- The client simply has no idea they are asking for more than originally agreed upon.
It’s crucial to monitor scope change at all times and realize that it will probably happen to your team. Create change orders for additional work that may pop up. Change orders prevent budget overruns by authorizing additional funding and covering the costs of extra work.
3. FORECAST RESOURCE USAGE
As your project budgeting needs consistent forecasting, you should do the same for your resources. After all, your resources are the bread and butter of your projects—and they do contribute to their overall cost. PMs should constantly re-forecast their resources by reviewing the number of people working on a project at a given time and anticipating the future on a weekly basis. This will ensure that you are utilizing your current resources and that employees are working as efficiently as possible.
4. COMMUNICATE WITH YOUR EMPLOYEES
A project is only as good as its team—and a team with poor communication is sure to go over budget. Keeping your team informed of the project’s budget forecast will help encourage accountability and productivity. Encourage open communication to promote ownership of the project. And if employees care about a project’s outcome, they will subsequently produce stellar work.
With these four tips in mind, I’d like to add one caveat:
When it comes to project budgets, there is a lot of talk about coming in ‘under budget,’ i.e., your project budgeting process is such that you’ll only take on a project if you’re certain you won’t have to go over budget for it. You’ll take preventive steps along the way, too.
This sounds good in theory, but being over-cautious about a project management budget can cause agencies to lose out in the long run. This can happen if you take on too few projects out of caution when, in reality, you’re coming in far under budget with your other projects and could have easily taken on more.
The trick is to find a comfortable middle ground. You exercise caution when agreeing to new projects and closely monitor the budget as the project progresses. Yet, you’re also prepared to take minimal risks that are unlikely costly and offer you the opportunity to grow.
Project Budget Management Software
Calculating a project budget takes an awfully long time when calculating manually, e.g., using an Excel sheet. Hours are spent pouring over data and crunching numbers, which you could spend on billable tasks. And that’s just the start of all the time you spend ensuring the budget is on track mid-project? You could be spending a staggering number of hours keeping track of your budget (which in itself reduces your project budget as you have to factor in all that non-billable work!). We won’t even mention what an absolute bore this type of work is!
But you could avoid it-yes all of it, simply by using project budgeting software.
Workamajig’s project budgeting software helps top agencies:
- Easily see which clients are your most profitable & where you can improve your margins with flexible financial reports
- Easily allocate overhead by hours, labor costs, or total bill to see true client profitability
- Budgeting & chargebacks establish clear timelines & transparent costs
- Prevent overstated revenue with advanced billings that are automatically deferred.
- Efficient invoicing & integrated billing features are the keys to a healthy cash flow.
- Drill down by project to see time entries for billable work and then review, adjust, transfer, or write off.
Use Workamajig:
✅ Save bundles of time and focus more on actual client work.
✅ Drastically reduce stress and tedium in your agency
✅ Understand your true profitability and start putting money in the right places.
Don’t use Workamajig:
❌ Waste hours on tasks that could be done with a click of a button
❌ Bore yourself and your employees to tears
❌ Stay in the dark about your true profit margin
So…how will YOUR budgeting story end?
To join hundreds of agencies with happy Workamajig endings, click here!