Mapping out new projects with your team is exciting. The gang gets together and hashes out a bunch of ideas during a marathon brainstorming session, and everyone walks away feeling reenergized and ready to charge forward and crush their new goals.
The initiatives are set, the plans are made, and the team is aligned on what they each need to accomplish. But halfway through the project, you realize there’s no money left – because in all the excitement you forgot to manage your budget along the way. Your team is forced to stop dead in their tracks and reassess, leading to missed deadlines and wasted time.
The truth is that even the best laid plans rely on proper budget management in order to thrive. In fact, 55% of project managers cite budget overruns as a reason for project failure — making it one of the most dangerous project management factors to overlook.
If you struggle to manage your project budgets, it might be helpful to think outside the box of dollars and cents. Instead, try approaching it as a data-driven way to understand what’s working and what needs to be improved in real time.
Now that you’ve shifted your mindset, let’s dive into everything you need to know about setting your project budgets and successfully managing them so your team can continue doing what they do best.
What is a project budget?
A project budget details all estimated costs for each activity your team needs to complete to successfully finish a project. Inside the budget are all the required resources, including materials, labor, equipment, and any other necessary expenses.
Project budgets go further than saying, “this project will cost $10,000.” Instead, they break down exactly where that $10,000 will go and why.
What does a project budget include?
Before getting down to the nitty gritty, there are a few things your project budget should include at a high level:
- Total costs: This is where the above-mentioned resources are laid out.
- Resource allocation: Then you’ll split your project into deliverables and specify which resources go where.
- Project timeline: Finally, you’ll break down when you expect to spend the money that each deliverable needs.
3 steps for building a project budget
1. Create a project outline
Before even getting started on the numbers, collaborate with your team members to build a project plan. This should include the entire project scope and every deliverable your team will need to produce to call the project a success.
Don’t let the word “outline” fool you – this part of the process should include breaking down each deliverable into steps so you can identify every single resource your team will require.
Have each team member involved double (and triple!) check the subtasks associated with their deliverables. After all, they’re the ones who do those jobs regularly, so they might be able to call out a step you might have overlooked.
2. List all resources
Review the list of subtasks you created in step 1 and make a list of all required resources under each one. A few common resources include:
- Team members: How many employees are working on the task and for how long? Do you need to hire any freelancers?
- Professional services: Does the task require any outside experts or agency contribution?
- Training: Do your employees need to learn any new skills to complete the task? What resources does that require? How long will the training take?
- Equipment: Are there any online tools or physical materials needed? What about licensing fees?
- Travel: Does the task require anyone to fly out to another location? Will they need financial resources to complete the duties while there?
3. Determine costs and finalize budget
The next step is to take that list of required resources and figure out how much each one will cost. There are a few methods that make this easier, depending on your situation:
You already have the allocated budget for the project and need to determine how to break it down. Assign a specific amount to each deliverable based on how many resources it requires. This approach may require you to reassess the project scope and find cheaper alternatives to complete the job.
Inversely to the previous method, in this case you’re setting the budget based on what you need. Give a dollar amount to each listed resource and then add it all together to reach your ultimate project budget. To do this you’ll need to configure work hours, tool costs, and any potential freelancer or outside agency rates to reach an accurate estimate.
Look at a similar project and base your estimates for your current budget on the actual costs of the previous job. It’s important to note that this approach only works if your past project data includes comparisons between your initial estimates and actual costs, and if the two projects are close to identical in scope.
Once you feel good about the numbers, present it to your team before finalizing.
How to manage your project budget
Congratulations! Your project budget is complete and your team is ready to get the ball rolling. Now, on to the management.
Create a project budget tracker
One of the smartest things you can do to properly manage your project budget is to track it in real-time as the project progresses. Doing this manually would likely cost a lot of time and energy, but using a tool like Harvest makes it a breeze to create a tracker for both hours and fees.
Monitor the budget
By regularly tracking your project budgets, you’re able to measure actual costs against what you estimated. This makes it easier to anticipate problems like overspend or scope creep before they become a derailing issue.
With Harvest, you’re able to see how much of your project's budget has been used and how much remains in real-time. You can even set email alerts to help your team know when a certain amount of the budget has been used.
This budget information is critical to understanding whether your project is progressing as expected and can help you anticipate potential problems while also providing insight that will help you budget future projects more accurately.
Review when the job’s done
If you’re managing your budget well, you’re going to have a pulse on how the budget tracked throughout the duration of the project. Still, it’s important to conduct an end-of-project budget review once your team completes the initiative.
Skipping this step leaves you lacking the valuable insights that could help you improve your project management practices in the future and pave the way for better budget estimates.
Take the time to make sure your final actual budget is included in your budget report and debrief. What went well with your budget? What didn’t? Conducting this type of assessment will make it much easier to set budgets for future projects, and Harvest makes it much easier to ensure you’re learning from your data.
Harvest turns your project data into a wide variety of visual reports that allow you to see which tasks are consuming your team’s time and impacting costs the most, so you can make better decisions when it’s time to plan for another project.
Managing your project budgets is done most successfully when you have the right technology behind you — and Harvest is here to help. Get started with a free trial today to see how easy it is to keep projects on track and on budget with powerful insights and tools.