The Importance of Project Budget
A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals.
Our definition of a successful project is one that meets four success criteria: that the project’s scope is delivered on schedule, it is delivered within budget and, once delivered, it meets the quality expectations of the donor and beneficiaries. For project managers to be truly successful they must concentrate on meeting all of those criteria.
The reality is that most project managers spend most of their efforts on completing the project on schedule. They spend most of their time on managing and controlling the schedule and tend to forget about monitoring and controlling the budget.
Budget management consists of a series of tasks and steps designed to help manage the costs of the project, the steps are:
- Defining the Budget
- Executing the Budget
- Controlling the Budget
- Updating the Budget
Inputs: Inputs for the project budget management include the following documents or sources of information:
- Project contract or initial budget
- Resource requirements
- Resource cost estimates
- Activity duration estimates
- Historical information
- Market conditions
- Donor and organization policies Project Budget Management
- Chart of accounts structure (COA)
Outputs: The project team will use the above information to develop three important documents for the project:
- Cost estimates by activity
- The Project Budget
- The Budget Variance Report
Project Budgeting is performed at the initial stages of project planning and usually in parallel with the development of the project schedule. The steps associated with budgeting are highly dependent on both the estimated lengths of tasks and the resources assigned to the project.
Budgeting serves as a control mechanism where actual costs can be compared with and measured against the budget. The budget is often a fairly set parameter in the execution of the project. When a schedule begins to slip, cost is proportionally affected. When project costs begin to escalate, the project manager should revisit the Project Plan to determine whether scope, budget, or schedule needs adjusting.
To develop the budget, the applicable cost factors associated with project tasks are identified. The development of costs for each task should be simple and direct and consist of labor, material, and other direct costs. Cost of performing a task is directly related to the personnel assigned to the task, the duration of the task, and the cost of any non-labor items required by the task.