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.  

click on chart to enlarge

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.


click on chart to enlarge


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)

9 comments:

  1. Couldn't disagree more... on time, on budget are two of the most over rated metrics related to project management. The sponsor cares more about adoption and value.

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    1. Tag: PM200A55. Let me share all of you about #5 Tips for Project Management Success,, I hope you enjoy it

      1. Plan your day using time management techniques

      As a project manager, time management skills are essential because you are dealing with a wide range of tasks that demand a quick turnaround time. Planning your day will go a long way in keeping you organized and increasing your productivity. Assist your task planning by using project management software which helps you track the work of you and your team.

      If you are not very tech savvy, a simple to-do list can also be a great organizational tool. Prioritize your most important tasks by putting them at the top of the list and less important ones at the bottom. Having a visual plan of your daily tasks helps to keep you on track and aware of time.

      Related post: Free ebook 104 secrets to become a great project manager

      2. Include stakeholders in important project conversations

      While you will have plenty of responsibilities regarding the project, don’t neglect your clients.

      Good communication is essential is keeping both parties informed of project progression, curtailing scope creep, and apprised of changing requirements. Some clients may have different expectations when it comes to communication, so make sure to establish the frequency and type of communication (like emails, phone calls, and face-to-face conversations) at the beginning of your project.

      Establishing communication expectations early helps alleviate stakeholder uncertainty about communication frequency and delivery.

      3. Regularly communicate with your team

      Daily team communication helps keep misunderstandings and unclear requirements under control. Keeping your team informed in every step of the project is essential to project management success.

      For example, a study published by Procedia Technology found that good communication skills were the cornerstone of project management. The study examined over 300 “construction project managers, architects, construction managers, engineers and quantity surveyors” and their successes and failures on various construction projects.

      4. Anticipate project setbacks

      Even the best-laid plans often go awry.

      Remember that even with a high amount of planning and attention to detail, your project may still encounter some challenges. Pay attention to complaints from stakeholders or colleagues, and other warning signs, like a missed deadline or cost overrun, that there may be a problem.

      Preventing a crisis will keep your project running smoothly, save you a lot of time, and keep you, your team, and your stakeholders confident in progressing with the project.

      Unfortunately not every complication can be avoided. Crisis management skills are essential for dealing with the unexpected. Project managers need to be flexible and pragmatic. Improvise and make sharp decisions when needed.

      Related post: 92 free project management templates

      5. Stay focused on the details

      A common problem project managers encounter is having the project aims not aligned with the organization’s objectives. A great project manager will strategize a plan for the project to lead back to the overall success of the business.

      Know your project’s scope by heart and avoid wandering outside of the project’s requirements. It’s too easy to get lost in minor details and forget what your focus is, so a well-planned project scope is essential for success.

      And final, you should use KPI to measure effectiveness of the project, here are full list: 76 project management KPIs


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  2. @WarEagleGreg
    but time and cost are also most important in project management

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  3. You have share the most knowledgeable post. Project budget management is very necessary to reduce risk. using project management software the management task can perform effectively.

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  4. The point mentioned are quite considerable to apply in the field of management, it also helps in tipping out how the project should be according to the situations which are always when you are completing or assigning your projects to others.

    Construction Service Management Software

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  5. Technical experts who would be employed to resolve issues that are typically very difficult or subtle popular project management software

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  6. This comment has been removed by the author.

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