How to Manage Budgets in Projects Effectively and Efficiently [Free Template Included]
Completing a project within a decided budget is as important as completing it on time. But, budgeting for projects is no easy task. It requires careful planning and management to ensure funds are used wisely and efficiently.
To keep a budget under control, business leaders and project managers need to be strategic in their planning. This process includes questioning the importance and needs for expenses at each stage of the project.
To help small business leaders struggling to keep their project budget under check, we spoke with Megan DuBose , a PMP expert from Project Management Institute (PMI), who agrees that managing a budget is not about cutting costs; it's about allocating resources wisely to achieve desired outcomes.
We have also included an easily customizable, free project budget template to help make budgeting much easier for you.
Project manager at Project Management Institute (PMI)
What is the project budget, and why is it important for your business?
A project budget is the total amount of money allocated to a particular project and is used to help ensure the project success. It should include all labor costs, materials, overhead, and any others that may arise during the project.
A successful project hinges upon effective budget management. The three essential components of a successful project are time, cost, and scope—collectively forming the "triple constraint" that plays an integral role in defining its overall quality. By having a clear idea of the budget and resources available, project managers can identify potential risks and create solutions to minimize their impact. A clearer budget idea and resources allow project managers to remain within the allocated budget and identify areas that require more investment.
4 quick and effective ways to manage budgets in projects
With years of experience in the project management field, Megan suggests four effective ways to manage the budget in projects that have been proven to be successful:
#1 Create a detailed outline and timeline for the project
Defining the project scope, timeline, and budget at the beginning is essential for ensuring that the project is completed on time and within budget. Carefully break down each step and calculate their respective expenses to figure out the overall cost of your budget.
Plan ahead for any unexpected happenings that could potentially cause delays and add to your expenses. Have a cushion of resources ready at all times, and create a limit you cannot surpass under any circumstances during the project's duration.
By leveraging the power of project management software, nearly half of all project managers have reported improved budget estimation capabilities*. Considering that, choose a project management tool that can help you create a comprehensive timeline and budget for the project in minutes and let you track progress in real time.
#2 Develop a comprehensive budget based on goals and outline
Once you have a clear idea of the steps and scope of your budget, move on to developing a comprehensive budget that captures all the costs associated with your project. Some of the details that you must find answers to before you start the project are:
Sources of finance: Do you plan to fund your project internally or secure external finance?
Resources: How many people would you need? What are the skills you're looking for, and at what stage? What materials do you need to procure and when?
Overheads and miscellaneous costs: What are some unavoidable costs such as insurance or taxes?
These costs should be factored into your overall budget. You can attain this information based on your previous experience and the expertise of your team. Also, it's always best to keep some contingency budget to cover any unexpected costs or additional resources that may be needed during the project.
As per our Technical Project Management Skills and Digital Disruption survey**, 75% of project managers say they're responsible for managing the budget along with other aspects of the project. To ace your budget development, use a budgeting and forecasting tool that can help you quickly create a budget and forecast future revenues, costs, and cash flows in real time.
#3 Implement cost-saving strategies to strive for maximum efficiency
Cost-saving strategies can help you minimize the amount of money spent on a project and increase the profitability of the venture. You must analyze every project cost aspect for the slightest chance of optimization and cost reduction.
Focus on optimizing resources, negotiating with suppliers, leveraging technology, and cutting costs wherever possible. Besides, you must also exercise control while using the budget (intelligently).
12% of project managers spend their time on budget management tasks***. To make your cost-saving strategies work in the most efficient way possible, use the appropriate project tracking tool that comes with a suite of powerful features like time tracking, document management, and invoicing to help you accurately analyze the actual cost and manage resources.
#4 Track expenditures against the budget and adjust as needed
Once the project is underway, keep track of the expenses against the budget and any changes that must be made, while also accounting for any potential delays or changes in scope.
To ensure transparency, evaluate your budget against actual costs regularly and adjust it when needed. Also, monitor all expenses and maintain detailed records for potential audits or reviews. This will help you understand the areas where your budget is going over or coming under so that you can make necessary adjustments on-the-fly.
39% of project managers anticipate their projects will exceed the budget***. Therefore, it’s important to have insight and visibility into expenditures. To keep track of the budget during different phases of the project, leverage the suitable time and expense tracking software and automatically generate reports on a daily, weekly, and monthly basis.
Bonus tip: Keep long-term costs low through project planning and preparation
By planning ahead and preparing your project for any potential risks, you can reduce long-term costs and enhance the project’s value. Here are two proven ways to do this:
Research relevant market prices before finalizing any purchases or contracts with vendors (including outsourced services).
You’re responsible for making sure all costs are within budget. Therefore, you need to stay ahead of market fluctuations and avoid getting stuck with an overpriced contract. Research the available options in the market and determine the best prices for resources or services you need. Also, make sure to evaluate the quality of the materials and services against their cost.
Constantly evaluate alternatives to maximize resources without compromising the quality or timeliness of outputs/deliverables.
Projects are often impacted by changes in scope, and this can have a direct impact on costs. To maintain efficient cost management throughout the project, it’s important to continuously evaluate and compare alternatives that can help you maximize resources without compromising the quality or timeliness of outputs/deliverables. This will allow you to make the most of your budget and ultimately run a successful project.
Take full control of your project budget with our free template
You can now easily create and manage your project budget with our free project budget management template. It contains all the information you need to track costs and expenditures, including work breakdown structure, planned hours, actual hours, materials units, and more. Documenting all costs professionally and accurately will help you stay on track throughout the project and reach your budget goals. So, stop worrying about your budget and start taking control of it now with our free template!
Project Management User Survey
* Software Advice’s Project Management User Survey was conducted in March 2021 among 422 U.S.-based project managers. The qualified respondents are decision-makers or have significant involvement with the day-to-day project management at their organization. We worded the questions to ensure that each respondent fully understood the meaning and the topic at hand.
Technical Project Management Skills and Digital Disruption Survey
** Software Advice conducted the Technical Project Management Skills and Digital Disruption Survey in June 2022 of 319 U.S. project managers who've managed an IT software development/implementation project to understand how often and why software is getting replaced, the technical knowledge of PMs, and the tools/approaches they use to help their companies choose and implement the right tech. Respondents were screened for their involvement with project management at their company (very to extremely involved) and that they use a formal PM methodology.
Strategic Project Management Survey
*** Software Advice conducted the Strategic Project Management Survey in September 2022 of 319 U.S-based project managers to understand the level of influence and partnership PMs have in the technology strategy at their company. Respondents were screened to ensure they are very to extremely involved in project management at their current company.
Megan DuBose, LinkedIn