How to Manage a Project Budget - FREE TEMPLATE!

The Practical Project Manager knows one thing is sure:  your project sponsor wants to know when the project is going to be complete!  Your ability to accurately report the the project ETC (estimate to complete) and EAC (estimate at completion) is a critical part of the project manager's job.

We answer the ETC question most accurately through a Project Budget.  Maintaining an accurate budget provides ETC and EAC answers about schedule, costs, and scope.

Note:  Most companies have a set of tools and practices for managing budgets.  For purposes of demonstration, Microsoft Excel and Microsoft Project are used here.

Before creating a budget, you should already have the following in place:

Solution Idea, including a project business case

Roles and Responsibilities, including accountability for decision makers and approvers

Definition of What Success Looks Like, including high level requirements

5 Project Budget Steps:

Step 1:  Create a Top-Down Estimate

A top-down estimate may have been completed as part of the business case.  If so, start with that.  The top-down estimate defines a) the major streams of work,  b) approximate cost, and c) approximate timeline.  Notice the task names are "nouns", describing WHAT needs to get done, not yet describing HOW to get the work done.  

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Step 2:  Create a Bottom-Up Estimate

The bottom-up estimate describes HOW to get the work done.  It decomposes tasks into actionable work units and provides a cost for each.  In this example, we decomposed the "communication and change management plan" work stream by adding A) actionable tasks ("verbs") B) costs of the resource or material, and C) the adjusted timeline based on the resource's availability and size of the task.


Notice the impact on the project budget:  Our top-down plan assumed $5,000 for the cost of the "communication and change management plan" work stream.  However, after doing a bottoms-up estimate, just one task group is estimated to be nearly $9,000.  It does appears the work can get done within the estimated time frame.  The project manager works through the details of the schedule to arrive at a proposed budget.

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Note:  Sometimes the bottom-up estimate calls for project cancellation of or re-work of scope if business objectives cannot be met.


Step 3:  Obtain Budget Approval
Final approval is usually a series of presentations and conversations with stakeholders and approvers.

Most organizations have procedures on who has authority to approve what level of funding.  It is important to follow these procedures and communicate with the responsible people to assure proper funding.

Obtaining full budget approval is cause for celebration!  Remember:  a decision is only an idea if it does not have a funded plan!

Step 4:  Agree the Budget Metrics and Reporting Procedures
Most organizations have procedures on how to report periodic budget performance. Start with a baseline budget that is approved prior to actually spending time or money.  Each period, report the Estimate to Complete (ETC) by updating actual costs and variances.  


Track resources and their assignments.  This can be accomplished using MS Project or MS Excel in addition to a plethora of project management tools available.

Step 5:  Provide a Periodic Performance Report including Estimate to Complete (ETC) 

Click here for a FREE Project Budget Template (MS Excel)