I’m often asked: “What do I need to include in a budget?”
I figured it was time to put together a list of what should be included when you are putting together your project budget. So here goes…
Record any goods you need to buy. Record what you need to hire and the duration you’ll need it for. All these things should be in your procurement plan, so use that as a reference. Make sure you’ve put everything from your procurement plan into your budget.
Consumable supplies are different to equipment because they are things that get used up. For example:
Again, check the procurement plan to make sure that you’ve included everything you said you would need to buy.
Essentially, the difference between equipment and consumables is the difference between capex and opex.
Many projects rely on external resources, either from a manufacturer/supplier e.g. to help you install and set up new equipment, or as consultancy resource to do a particular skill e.g. requirements analysis.
Look at the equipment and supplies you need, and see if any of them have the requirement to rely on their own resource – if so, you will need to budget for the people to come with the goods.
Consider what services or skills are required, and whether or not you have them in house. If not, you should budget for buying in those skills e.g. test manager, specialist developer, auditor, health and safety expert, lawyer etc.
If you have to hire people from overseas, or have contractors who will charge in a different currency, read this article on how to manage multi-currency budgets.
Companies vary in how they account for internal staff. You may be expected to cross-charge a department for using internal resource on your project. Or you might be able to use the people “for free”. Check what your internal rules are.
Budgeting for internal staff is one of the hardest things to do on a project, in my opinion. You aren’t charged for their person at their salaried rate, so you’ll need to find out the appropriate charge to budget for.
Make sure your project budget includes applicable taxes at the relevant rate. Often, suppliers provide estimates without taxes included, and if you don’t increase the quote amount by the tax amount, you’ll find your budget is wrong.
Expenses relate to the costs for the people involved. Whether you are using internal staff, external staff or a mixture of both, they will likely incur some expenses for travel and accommodation. For example, if a supplier attends a meeting at your office, they will most likely charge for their travel to that destination, and hotel accommodation if they need to stay over, and meals.
Some companies also (or instead of) charge a ‘per diem’ which is a daily fee to offset incidentals that consultants away from home incur. It may include a meal allowance, newspaper, laundry etc, but instead of invoicing you directly for all of these incidental costs, the company charges you a flat rate per person per day.
Contingency/Risk management budget
Contingency funds are there to offset risk. Contingency planning can be in the form of time or money. Time also costs money, so either way, make your contingency explicit in the budget.
As well as contingency, it’s also worth including management reserves if you can. This is a figure put aside to deal with unknowns. However, you’ll also hear people refer to management reserves as the ‘contingency budget’ because sometimes they don’t know the difference, or because in their organisation, ‘contingency’ really does mean ‘money put aside in cases of emergency and we don’t know if we’ll use it up but it’s nice to have just in case.’
If you aren’t clear on the preferred jargon of your business, ask the question. Make sure you and your finance team (and sponsor) are talking about the same thing.
Watch this video for tips on how to reduce your project budget.
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My favourite way of creating a project budget is to first ask how much money I’ve got, and then go from there :)
I know it’s not the best way – or even the most ‘project management-y’ way – but sometimes it’s worth cutting to the bottom line and using that as a starting point. What a waste of time costing out a project beautifully only to have executives tell you to try again, and make the number 50% less. Let’s just start with where we are supposed to end up!
However, that’s only one way to create a budget, and, as I say, is hardly best practice. In this short video, we’ll look at 3 more reliable ways to build out your project costs so you can establish how much your project budget will be overall.
For more background on how to create a project budget, this article will help you get your thoughts together before you dive in.
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When you’re managing a project budget, there are some key dates you should know! These general accounting dates can be laid over your project schedule so you don’t miss any major financial milestones.
1. Year End
Financial year end could be any time in the calendar year. I’ve worked with businesses that align their financial year end to the tax year, to the end of the calendar year (i.e. December) or to the date of incorporation (in the case of my business, that’s May).
It doesn’t matter when year end falls for you, as long as you know when it is!
Year end is important because it marks the close of one financial period and the start of another. You may have to get involved with accrual calculations and budget carry overs. If you miss the deadlines, you might not get your project budget in the next financial year!
2. Project Phase Dates
Some businesses work by releasing project funds according to the stage of the project. In other words, you don’t get the full amount of the project budget on Day 1. As the project moves through the lifecycle, funding is released in chunks.
Normally the dates align to stage gates or project reviews, where the steering group will approve the project to move to the next phase. That then triggers the release of the funding required to do the next phase of work. Be ready! Especially if you need to change your original forecasted budget request based on what you have learned during the current phase.
Reporting dates relate to so many different areas of your project. They are important for project budgeting because you will need to prepare a short budget summary to go into the report. As you approach the reporting deadline day, make sure your financials are up to date so you can drop the most recent figures into your report template.
4. Tax Dates
Tax rates don’t change often, but I did once work on a project where the rate of VAT changed halfway through the work we were doing. It made budgeting very confusing!
If you know of upcoming changes to tax (typically linked to government announcements and budget cycles), then watch out for whatever impact that might have on your project and make sure you note the date the changes come in!
5. Project Closure
Yes, you surely know the project closure date – the target milestone you are working to for everything to be done!
It’s important for budgeting purposes because you may have to calculate budget at completion, or staff run rates, all of which need you to know when the final expenses on the project will be accounted for.
What other dates should project budget holders know about? Let us know in the comments below!
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It happens: your project budget won’t quite stretch to the full amount you are forecasting that’s required to complete the work.
But when you do have to ask for more money, how should you go about it? The conversation with your manager or sponsor can feel a bit awkward.
Here are the steps to take to ask for a budget increase (and get it).
1. Clarify why you want the extra
You’ll have to justify why you want the extra funding. Be clear about what it’s for and what has changed since your first project budget was put together. You might have a very good reason, such as a change to the project that has been approved – but is going to cost more.
Unfortunately, it’s often the case that the estimating wasn’t that great the first time round, so you simply got it wrong and need more budget to cover the existing work. Just be honest.
2. Define how much you want
So you know you need more. But how much more exactly?
Do your sums. If your estimating wasn’t up to much last time, use a different method for calculating what you need this time. Learn from your mistakes. Use your subject matter experts to help. Add contingency. Basically, get it right.
I know that’s tough, but take your time and get really clear on what additional funding you are asking for. This is important because it’s embarrassing to have to go back and ask for extra funds a second (or third or subsequent) time. If you’re going to have to ask for more money to deliver the project, let’s ask just the one time.
3. Put together a justification or options
You know what you need and you know why you need it. But so far, we haven’t explained that to anyone. Get your story clear. Justify why the additional funding is required.
If you are able to present options, do so. For example:
You’re presenting a menu of options for your project sponsor to choose from. They can choose to go forward with all of them, and will need to find the full allocation of funding you have asked for. Or they could pick and mix from the list, focusing on the changes and additional work that they feel will be most valuable for the project.
4. Talk to your sponsor
With that information in hand, it’s time to talk to your sponsor. Arrange a time when you’ll have the opportunity to discuss the options.
The conversation will be a mixture of presenting to an executive and also a general chat about the project. Be prepared to talk them through your justification, getting straight to the detail, but also for them to derail the conversation by talking about other aspects of the project that concern them. Make sure you get enough time talking about the funding issue.
They might not be in a position to make a decision straight away about how much additional funding you can have and for what. If there is a time-critical element to their decision making, let them know. For example, you might only be able to secure a special discount on a product until the end of the financial year, or something like that.
Be clear that you need them to make a decision.
5. Act on the decision
You’ve got the decision. You can either have the funding (hurray!) or not. Either way, you can now take steps to work on that basis. If you can increase your project budget, change your budget numbers (and record that the change was approved).
If you have been told that you can’t have the extra funding, you need to go back to the drawing board and review what you can achieve with your project. Maybe you need to deliver over a longer period of time, or release resources, or review what you can realistically complete with the money you have.
What tips do you have for requesting additional funding on a project? Let us know in the comments below!
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What spreadsheet package do you use? Personally I use Microsoft Excel, although I do have Numbers on my iPad I case I need to look at a spreadsheet while I’m out and about. I sometimes use Google Sheets for personal projects as well, but I’m not massively comfortable with it.
Regardless of what tool you use, spreadsheets are a huge part of life as a project manager. Whether you are exporting data from an enterprise project management tool, creating a budget forecast or using filterable lists as a way to manage tasks, risks or issues, spreadsheets have so many uses in project management.
Here are some tips to make using spreadsheets easier – all tried and tested by me and colleagues over the years!
1. Add Notes and Comments
Add notes to your spreadsheet so you know how the formulae work and what estimates were based on.
You can do this by adding a separate tab to record notes, if there are a lot of them. I record the way I formulated an estimate for the budget, and what the figure includes, plus any assumptions around resource time and so on.
For short notes, I add them as a comment on the relevant cell. This is the easiest way to note when a cell was updated, or to record what was in the cell before you changed the estimate to be something else.
2. Add Version Control
Learn how to do version control on your documents (where version control is not added automatically by your software). Then add a tab to the spreadsheet showing a table with version control numbers.
When version controlling a spreadsheet, don’t try to add an incremental version number every time you update something. That would be time consuming and not add any value. Instead, do a major version update every time something substantial changes, such as changing major formulae or rebaselining. You’ll get a feel for when it’s important to create a new version.
3. Freeze the Top Panes
Project management spreadsheets can get quite large. In Excel you can freeze the top and side rows so that you can scroll through the spreadsheet and the headers stay in place. It makes reading and moving around a big spreadsheet much easier because you don’t lose the column and row descriptors.
4. Lock Cells
Use the functionality of your software package to lock cells that you don’t want other people to update. For example, in a status tracking spreadsheet, you might have cells that you need to have populated with ‘Open, Closed, On Hold’ etc.
You can fix the spreadsheet so that only those options are permitted. You can also lock cells so they can’t be changed, which is helpful if you have a form and you only want to allow people to enter information in certain places.
5. Add Conditional Formatting
Conditional formatting means the cell colour (or whatever section you choose) updates based on a rule. For example, if the contents of the cell is a number less than 50%, make the cell turn red. This is achieved using a red background fill. You can change the text colour, or use other formatting rules.
This is helpful when you have a large data set and you want to instantly draw people’s attention to figures that are outside the acceptable norms. You can colour code information as red, amber and green by setting up conditional logic once, and adding that formatting.
What tips do you have for making it easier to use spreadsheets? Share your best advice in the comments below!
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