7 Steps to Creating a Project Budget
Creating an accurate project budget is the most important aspect of placing a bid for a project or finalizing the planning of a project. However, many project budgets fall short of expectations due to a failure to identify all the potential costs within a project budget.
On the surface, the budgets seems like it only revolves around the labor and material costs. In reality, the project budget extends from labor costs to the cost of purchasing software. Take a look at the seven steps to creating a successful, accurate, and thorough project budget.
1. Define the Direct Labor Cost
Depending on the scope of a project, you may have dozens or hundreds of labor costs to consider. Will the project require workers with special training, and what is the average cost of hiring the needed workers? These questions need to be fully vetted before creating a direct labor cost. Some positions may require minimal training, yet other more advanced positions, such as welders, may require years of knowledge and experience.
2. Estimate the Material Costs of the Project
After determining how many workers will be needed for the project, estimate the total material cost of the project. This step provides a balance against the labor costs. If your material costs are minimal, you may be to hire additional workers to complete the project ahead of time. If your materials are extensive, you may need to see if labor or other costs may be reduced to meet the project’s demands.
3. Assess Potential Travel Costs of the Project
If your project is located across geographic or political boundaries, consider how travel costs will affect your project. Will you be traveling to meet with upper-level management on a regular basis, or will computer conferencing be a better, cost-effective solution?
4. Estimate the Cost of the Project Office
The project office cost includes the salaries of your project team members, your time, and what additional materials may be needed. You must separate the cost of the project office from the cost of purchasing project management software. This allows you to focus on other costs in your project management office without worrying about software concerns.
5. Define What Equipment Costs May Exist in the Project Budget
Larger project may incur additional equipment costs, especially in the oil and gas industries. Use your labor and material estimates to define the equipment for the project as well as how many pieces will be needed.
6. What Administrative Costs Will Be Incurred?
For extensive projects, especially projects as part of a program, consider the potential costs of administrative input in the project. This may include an administrative assistant or an administrative staff away from the project management team.
7. Define the Cost of Software, If Necessary
If the company requires a specialized project management software, the cost of adding your staff to the software, such as licensing fees, needs to be included in the project budget. Furthermore, you may ask the company to use an alternative software of your choosing, or you may be asked to select the type of project management software. Either way, the cost of software selection needs to be addressed.
By following these seven steps, you can reduce the chances of creating an inaccurate project budget. Furthermore, assessing each of these areas will help upper-level management determine if your project may need changes to the budget to meet your needs.
Key Costs in a Project Budget
- Define labor costs.
- Estimate material costs, and check against labor needs.
- Include travel costs for projects far from the company’s headquarters.
- Assess the cost of the project office.
- Review equipment costs to meet the needs of workers and material requirements.
- Will any administrative costs be included?
- Include the cost of project management software, if the company’s software is not in place or out of date.