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Project Budget Management: Steps, Tips, Best Practices

Project budget management is the process of planning, allocating, tracking, and controlling project resources throughout a project’s lifecycle.

But creating a project budget that works for you and your client is an art form. It’s the profitability of each project that will decide if your business sinks or swims. 💰

So in this post, you’ll learn how to create and manage a winning project budget like a pro.

What is a project budget?

A project budget is the total cost of all the tasks, activities, and materials associated with a client project.

A well-defined project budget helps you track the estimated costs versus the actual cost. And you can use it to track project expenses and reduce the likelihood of running out of resources or going over budget.

Project budget vs. estimate—what’s the difference?

A cost estimate approximates what the project (or piece of it) will cost. The budget is the final cost that’s allocated to the project.

The estimate is more of a ballpark figure, and the budget provides hard edges. You can’t go over-estimate, but you can go over budget.

Typical project costs

Project costs will vary from business to business, so we’ll stick with the most common ones:

You may also want to consider adding a percentage to the final project budget to cover indirect costs—such as your business’s overhead expenses (rent, utilities, employee training, etc.) 

Generally, you can use a percentage range between 10% to 30% of the total direct costs to cover indirect costs—but this will vary from business to business.

Techniques for estimating a project budget

Before you go ahead and rush into creating a project budget, it’s wise to get familiar with the different budget estimation techniques.

There are a wealth of proven project estimation techniques , but here are the ones we think will be most helpful to you:

Expert judgment

Analogous estimation.

• Top-down estimation
• Bottom-up estimation

This one is pretty self-explanatory.

Start with your team and add use SMEs if you have knowledge gaps. Expert judgment is helpful when you don’t have historical data, or the project is simple enough.

But the biggest downside to this approach is the subjectivity—one person’s estimate could be wildly different from yours, for example.

This is where historical data can be useful…

Analogous estimating is a pretty easy way to determine how much something might cost.

You look at similar projects you’ve done and use them to create a ballpark estimate for the project.

But be careful; this is only a reliable method for estimating a project budget if you can access past project data and the project isn’t overly complicated.

Using Toggl Track , you can view past project data using the Report Dashboard .

You can access data at project and task-level such as:

• Total tracked hours
• Total billable hours
• Total cost in labor

You can use this to put together quick estimates of costs and time.

Top-down estimating

Top-down estimating looks at the high-level project scope and budget, avoiding digging into the nitty-gritty of the work to create a ballpark estimate.

It is a form of analogous estimating, where existing knowledge of similar projects is used in the estimation process to produce a ballpark figure for the total cost.

Top-down estimating can also involve the client setting the budget—this means it’s up to you to allocate funds to different tasks, phases, or deliverables.

Top-down estimating can be super efficient and straightforward but often needs more detail and nuance. Plus, if the client has a tight budget, it can be challenging to fulfill the goals and objectives of the project.

Bottom-up estimating

Bottom-up estimating considers the time, cost, and effort for each task within the project. It then adds it up to create an estimation for the entire project.

It’s best to use a combination of a  Work Breakdown Structure  (WBS) and historical project data when using this technique.

This approach is much more detailed and accurate but can be incredibly time-consuming as it requires more input from your team.

Project budgeting tools

Here’s a list of tools you may find helpful when creating and managing your next project budget.

Work Breakdown Structure (WBS)

A Work Breakdown Structure (WBS) is a way to break down a project into smaller, manageable tasks. That way, you can estimate the cost of individual tasks or phases to create a far more accurate budget for your client and statement of work .

You can use our free WBS template for this.

But creating a detailed WBS can take time—so it’s best to create one for projects when:

• You fully understand the project requirements .
• The client is committed to working with you and signing an SOW .

Learn more about the different types of project budget estimates in the ‘ When to create a project budget ’ section.

Spreadsheets

Using a spreadsheet to create a project budget is a practical way to organize and track your project’s expenses . 

Spreadsheets are great for creating and managing project budgets as they are versatile, efficient, and user-friendly.

Our WBS template incorporates project costs, so feel free to use that as your template.

Once the project has started, you can use our free project budget template to track expenses. The template focuses on tracking hours for specific tasks within a project and includes columns such as:

• Estimates hours
• Estimates cost
• Actual hours
• Actual cost
• Over / under (budget)

I’d recommend you check out the ‘ Free Project Budget Template ‘ guide to learn how it works best.

You can also incorporate a project time tracking tool into your project budget management process.

You can use Toggl Track’s Project Dashboard for your cost estimation process . You’ll get access to historical project data you can use to create quick estimates.

The Project Dashboard will let you dig into data such as:

• Total time tracked
• Total billable amount tracked
• Task level time and costs tracked

Once the project is up and running, you can easily track expenses and assess profitability in real-time.

You can use the Project Dashboard to track the project’s expenses (labor and contractor costs) against the fixed fee you set.

How to create a project budget in 7 Steps

A typical project budgeting process may look like this:

• Define the project scope and client requirements
• Break down the project into tasks
• Create a cost estimate for each task
• Build your project budget estimate
• Add a project buffer and contingency fund
• Get approval from the client
• Track and monitor the project budget

Note:  for a more thorough step-by-step guide on cost estimates, please head over to our  project cost and time estimate guide .

1. Define the project scope and client requirements

The first step in managing a project budget is knowing what must be done to deliver the project successfully.

This should be done during the project’s discovery phase, and you will best be able to define the project scope once you’ve gathered all project requirements .

Defining the project scope will give you a lot of necessary info like:

• What’s going into a project (resources)
• What’s coming out of it (deliverables)
• What needs doing (tasks)
• How long will it take (timeline)
• Everything the client is requesting

2. Break down the project into phases and tasks

The key to protecting any project budget is knowing the exact tasks you need to complete to deliver the project.

Once you’ve collected all project requirements and defined the project scope, you can break the project down into manageable phases and tasks.

The best way to do this is to use a  Work Breakdown Structure  (WBS). This will help you uncover everything you need to know to get the project over the line and protect the budget.

But what to list? What about the little tasks? How deep to go? Check out our guide ‘ Work Breakdown Structure: A Guide For Agencies ‘ to learn more.

3. Create a cost estimate for each task

Now that you know what tasks are involved, you can start understanding the time and costs associated.

Here’s an overview of different  project estimation techniques  for this step.

Say you’re using the bottom-up estimation technique. You can use the  WBS template  to build cost and time estimates for each task.

Alternatively, using  Toggl Track , you can use historical project data to help speed up this process. You can use the  Reports Dashboard  to analyze what went into them, including resources, time, and cost.

This is especially great for any project work consistent in scope, hours, and effort required.

4. Build your project budget estimate

With your list of potential project costs in hand, it’s time to start estimating the cost of your entire project.

You can approach a budget estimate in three ways:

• Using your experience
• Using the WBS template provided
• Use past historical data to create a quick estimate

But say you used the WBS template from above. You may have something that looks like the image below.

Look at your final number and review it, and review it again. Check it for accuracy by speaking to your team and reviewing similar past projects.

5. Add a project buffer and contingency fund to protect profits

Not everything goes as planned, so expect the unexpected.

A project buffer will help account for anything that could go wrong within the project. It will be a much-appreciated cushion for minor issues and sudden changes.

Issues like:

• Scope creep
• Sudden changes 
• Moving objectives
• Increases in material costs

Note:  we’ll look deeper at some of the issues above and how to deal with them below.

Your project buffer will also cover any little expense you didn’t (or couldn’t) account for — the unknown unknowns.

How much of a project buffer should you add?

Experts recommend adding about 10% – 20% to your project estimate. Check out the video below for more tips on this.

The better solution to adding buffers to your project cost estimates is to mitigate the impact of project risks by estimating for it upfront.

This can be done by adding a 20% contingency fund to your estimate to account for change and risk.

Don’t build this into your estimate; add it as a separate line item. This helps set a precedent and educates your client that changes to scope equate to additional costs from the contingency fund.

This means you can say yes to your clients a lot more, with a small caveat that you’ll be using the additional budget for it.

6. Get approval from the client

The last step in the project budget creation process. By now, you should have a project budget you’re happy with. So it’s time to get this sent to the client for approval.

If you’re creating a project budget as part of a proposal, remember to include the following:

Need a project proposal template? Download our free one  here .

After a client has reviewed your proposal/budget, listen to their feedback and make adjustments until you reach a budget that everyone can agree on.

Do clients often say your price is too high? Check out this video below.

7. Track and monitor the project budget

Once the project is underway, track project expenses against the budget to ensure you stay on track.

In the agency or freelancer world, this will typically mean keeping track of costs such as:

• Your labor costs/team labor cost
• Your time — aka your billable hours and actual costs
• Your project expenses (materials, software, contractor costs, etc.)

If you’re comfortable with spreadsheets, you may want to use our  project budget tracking template  to manage the overall budget.

But are spreadsheets your best option to control project costs ?

Probably not.

I’ve chatted with a few agencies and freelancers that use spreadsheets to track their time – and they  always  say how chaotic they are.

• Files get copied
• Some go “missing.”
• Formulas are unintentionally edited
• People don’t tend to fill them in all that much
• You’re unable to quickly get insights you can leverage (more on this later)

Thanks to  time tracking tools , tracking project budgets have never been more manageable.

Unlike spreadsheets, many of the  best time tracking tools  come with features that help to automate and streamline the entire project budget-tracking process.

Using Toggl Track , you and your employees can quickly start tracking your time by entering a time entry description and hitting the timer button.

It takes a few seconds to switch the timer to a different task (especially if projects and tasks are already set up).

• Type in your “time entry description”
• Find your client
• Select what “project” you’re working on
• Start the timer

Once you or your team accurately tracks time against the project, you can use the  Project Dashboard  to track your progress against the project budget.

Project Time Estimates  lets you view whether you’re over on hours or on target based on the estimate you set. If you’ve exceeded the time estimate, the time tracked will turn red.

The Time Tracking Chart will show a forecast for project completion based on the project estimate and the hours clocked for that project so far.

The Billing Amounts chart shows the progress against a fixed fee amount (the project budget) set for the project.

Below these forecasting charts, you will also see a bar and pie chart representing current data containing total clocked hours,  billable hours , and remaining hours (based on the project estimate).

Want to see how profitable each project is?

Head over to the  Insights Dashboard —it’s designed to give you more details about the profitability of your projects  and  team members.

You can better monitor a project’s budget using  Alerts in Toggl Track . You can set up Alerts to be triggered based on a time estimate or a fixed fee.

When to create a project budget

You probably spend a lot of time creating proposals and going through an entire sales cycle, only to be told the client isn’t interested in working with you.

Want a hack to save you some time during this process?

Here are three different types of budget estimates you should consider:

• Ballpark estimate  – The client needs to know if the project is possible, but you need more information to give a proper estimate. So you can do this by giving them a ballpark estimate of the project’s cost based on expert judgment or historical data ($80k-$140k).
• Budget estimate  – Suppose the client is happy with the ballpark estimate. In that case, you may ask for more information about the project to assemble a more accurate estimate and plan using a WBS or historical data. Your revised estimate may change to $90k-$130k.
• Statement of work estimate – Assuming the client is still good to go, the final step in the estimate refinement is creating a detailed WBS using your team and historical data to make your final budget estimate. This is the cost you should include in your SOW. You may adjust your estimate to $100k + a 20% contingency fund.

Why do projects go over budget?

Your project budget will inevitably hit a snag no matter how well managed. So let’s look at some top reasons project budgets go overboard and what you can do to prevent them.

Additional client requests

It’s easy to get tied up in client-pleasing.

They ask for another web page–sure! They ask for another revision–you got it!

If you aren’t charging for the “little extras” you’ll risk going over budget.

You will inevitably face them—but knowing how to deal with additional requests is critical here.

Here are three ways to best handle additional requests:

It’s healthy to set boundaries with clients. Charge for little extras, or acknowledge the request and let them know it will cost extra. Communicate with them, and both parties will be better for it.

Sudden changes

Unexpected changes can take a bite out of your budget.

These additions could be something that wasn’t included in the initial planning or a sudden need to adapt due to unforeseen circumstances.

Unplanned changes can include:

• Lacking specific resources and materials
• A team member leaving the project
• A team member was sick
• Vital tasks that were forgotten and, as a result, never added included in the budget

Protecting yourself from people leaving your business or being off sick is hard. 

But you can use as much past project data and as you can get your hands on to protect budgets and profits better.

This may mean reviewing old project plans, past cost estimates or better understanding the potential risks of each project .

All this information will help you make better decisions on budgeting for and managing your projects .

Poor planning

Yes, poor planning can lead to a poorly planned budget. Another disaster averted by Captain Obvious.

In all seriousness, this is a crucial point to stress.

60%  of projects have a scoping document, defined methodology, and undergo risk management.

This means that 40% of projects don’t have a solid plan. That’s 400 projects out of 1,000. 💀

The best way to prevent this is to plan, schedule, and review each project. Preferably with multiple team members to get several sets of eyes on it.

Here’s a project schedule laid out in  Toggl Plan .

Comb through your  project’s plan  carefully,  assessing time ,  project costs , and risks as you go.

Double-check and triple-check your project before you waste boatloads of time and money.

A session or two of reviewing a project plan will allow you to spot potential problems ahead of time and ensure everything’s water-tight.

The moving target

Goals and objectives moving constantly can de-rail any project.

You may find yourself in a situation where your trying to get a deliverable over the line, but the client keeps moving the goalposts. 

Meaning you spend more time on each task than needed.

How do you deal with this? 

• Stop everything you’re doing immediately.
• Get clarity from the client.

Stop all work on the project immediately and get clarification from the client asap. You’re going to burn through the budget if not. 

Send them an email or give them a call and say something as simple as:

“In the interest of keeping this project on track and within budget, I need some help clarifying our goals and direction moving forward.”

You must let them know that you are mindful of their budget and time.

Spend time revisiting the project scope and SOW (your safety net) and ask the client, “are these still our goals and objectives?”

If not, then you can acknowledge the new direction and charge accordingly.

Project budget best practices

Wondering how some of the pros manage their budgets?

We reached out to several agency owners and project managers about what they do to keep a project budget on track. 

Here are some of our favorite tips:

Be transparent with the client

James Nesbitt of Myth , an app and software development agency, puts client transparency at the top of his list.

“ A big part of project budget management for us is being incredibly transparent with our clients from the outset and again once a project is underway. 

This all comes down to your onboarding process and taking the time to cover all project aspects extensively with the client to ensure that both parties are on board with expectations about the required deliverables. “

The best way to tackle this is to:

• Collect and fully understand the requirements of the project
• Breakdown the project into phases/deliverables using a WBS
• Document all project phases/deliverables in a statement of work
• Get the client to agree that anything out of scope will be charged extra
• Create a project timeline with all tasks and milestones that can be shared with the client

Following the steps above means you’re not going into a project afraid of additional requests that will likely lead to a spiraling budget.

• Create a risk management plan

One of the most common challenges in project management is fighting off project risks from consuming your budget.

What do common project risks look like?

Here’s a quick summary of project risk examples for you skimmers:

Common project risks will inevitably creep toward a project budget, so a risk management plan is crucial.

This is what Simon Bacher of Ling App has mastered to keep his projects on track:

“ Without a comprehensive risk management plan, unexpected risks get out of hand, which will only inflate project costs over time… I create and implement a yearly risk management plan based on historical and projected risks. “

The best way to defend yourself against project risks is to:

• Understand common project risks and how to avoid them
• Perform a risk assessment with your team

Collaborate with your clients

Who knew that communicating with clients would be beneficial to keeping a project budget on track? 🤡

John White of Complete White Label , a link-building and content marketing agency, stresses the importance of working with your clients from the outset.

“ Setting these targets collaboratively with our clients has led to fewer budget overruns since it improves our ability to plan efficiently, allowing us to allocate resources and time better, ultimately narrowing the budget. “

What can you do to get the client involved?

You should both work on the following:

• Defining project expectations
• Creating a detailed project plan
• Building a project timeline with goals and milestones

Create your project plan and timeline internally, then share it with your client for feedback.

Use Toggl Plan to create a visual timeline to share with your clients.

Shared timelines are read-only. This means your client cannot edit the timeline in any way. They can, however, view the entire timeline together with tasks and milestones.

Have regular check-ins with the client

Communication with your client shouldn’t stop when the project has started.

One strategy Ryan Mckenzie of Tru Earth uses to manage a project budget is periodic project status check-ins with key stakeholders.

“ These check-ins helped me identify scope creep or other issues that could lead to the project being over budget. During these check-ins, it’s essential to assess progress and ensure everyone is on the same page regarding any changes in scope or timeline that could increase costs. “

How often should you check in with your client?

Honestly? It depends. 🤷‍♀️

There are two main factors to consider: 

• The length of the project
• The size of the project

A multi-year project might only require a status report every quarter or every six months. But a project that lasts six months? Monthly reporting is probably a good cadence.

While keeping management or your client informed of the progress is essential, project reports often take time. So creating them too often might be considered wasteful. 

But then there is the second element to consider—the project’s size.

Straightforward projects like creating a one-page flyer probably don’t need much reporting. 

But something as complex as a website build, mobile app, or branding campaign may require regular updates. So writing a project report every month or quarter is worthwhile. 

But don’t go overboard with project progress reports. Too much project reporting can be problematic. You don’t want to drown yourself with admin work when your time could be better spent on profitable work. Try and apply some common sense.

Create a detailed statement of work

A statement of work (SOW) is probably the most important document in any project.

It helps to:

• Provide a framework for communication
• Manage and avoid common project risks
• Act as the baseline for project post-mortems
• Establishes goals, objectives, and deliverables 

An SOW is a document that Rocco Brudno , a content and SEO consultant, is all too familiar with.

“ Clients often have different expectations of what to expect once a project starts. So getting project details ironed out from the start can significantly reduce the variables that create out-of-scope work and ensure everyone is on the same page. “

In disputes or disagreements, your SOW is the document you should refer to if you think your client is requesting work out of scope.

Track project progress and expenses

Tracking project progress using project management software is another way to help keep project budgets on track.

Maria Harutyunyan, Co-founder & Head of SEO at Loopex Digital , champions this approach:

“ One strategy that has helped me keep client project budgets on track is utilizing project management software to ensure visibility and accountability across the project lifecycle…having an overview of everything related to a single client project makes it easy for everyone involved in the team (including clients) to stay updated on progress. “

Toggl Plan allows you to organize tasks on a Kanban board format and provides a clear overview of task statuses.

The Kanban board helps you to protect your project budget by allowing you to:

• Reorder and prioritize upcoming tasks with our simple drag-and-drop interface.
• Prioritize tasks during sprints without focusing on time estimations.
• Segment all tasks based on their current status for the best project overview.

Or, you can switch to a project timeline view that can be used to schedule and track a project from start to end.

The timeline view helps you to protect your project budget by allowing you to

• Get a clear overview of who’s doing what and when.
• Visually track tasks from start to finish as they get done.
• Schedule tasks without conflicting with other projects, time off, and public holidays.
• Create color-coded milestones and optionally make them visible across projects to meet deadlines.

Toggl Plan integrates seamlessly with Toggl Track  to help you better track your project costs and protect your budget.

Turning projects into profit

Money no longer gets to pull your puppet strings. It’s long overdue that  you  control your money.

For more reading on cost estimation and budgeting in project management, go check out our guide on  estimating the cost of a project .

Want to learn more about managing projects?

Check out the following guides:

• How to Maximize Your Project Profitability
• How to Track Project Expenses (And Stay Within Budget)
• Project Monitoring: The Beginner’s Guide
• Project Cost Management: The Ultimate Guide
• What is a Statement of Work? A Guide for Beginners
• How to Create the Perfect Project Management Plan

Sean is a Content Marketer at Toggl. He's been involved in SEO and Content Marketing since 2017. Before working for Toggl, Sean ran SEO at a digital marketing agency—so he's all too familiar with time tracking and project management.

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Project Budget Management: A Step-by-Step Guide in 8 Easy Steps

Do you often find yourself confused about keeping your project budgets under control? Imagine being able to foresee potential budgetary obstacles and proactively address them, leading your project to completion with minimal financial hiccups. 

It’s all about project budget management. 

At the heart of every successful project lies a well-structured and diligently managed budget, and with the proper techniques, you can understand your financial resources, allocate funds strategically, and make informed decisions to prevent overspending and maximize your project’s potential.

We have prepared this comprehensive guide on project budget management, breaking it down into eight easy-to-follow steps that will transform your budgeting into a smooth, effective process.

Let’s get started!

Table of contents

What are project budget components, what are the types of project budgets, what are the key benefits of effective budget management, why is project budget management critical, what is top-down budgeting, what is bottom-up budgeting, what is zero-based budgeting, what is activity-based budgeting, what is parametric estimating, what is analogous estimating, what is three-point estimating, what is earned value management, #1 initiating the budgeting process, #2 estimating project costs, #3 creating the project budget, #4 budget approval and stakeholder communication, #5 implementing the budget, #6 monitoring and controlling project expenses, #7 risk management and budgeting, #8 project closure and budget evaluation, what tools to use for project budget management, how do you maintain a budget balance in your project, what is project budget management.

Project budget management is the art and science of planning, estimating, allocating, and controlling the financial resources required to achieve project objectives . 

It serves as a financial roadmap , guiding project managers and stakeholders through the entire project from initiation to completion. 

Let’s dive into the fundamental components of project budget management.

A project budget comprises various interconnected components forming a comprehensive financial plan. 

The first is direct costs , which are expenses directly tied to the project’s deliverables and activities. 

Direct costs can include:

• Labor: The wages or salaries of team members and workers involved in the project. This includes the cost of their time and effort dedicated to project tasks.
• Materials: These can vary depending on the nature of the project, such as construction materials, software licenses, or manufacturing components.
• Equipment: The cost of purchasing, renting, or leasing specialized equipment or machinery necessary for completing project tasks.
• Space and facilities: The expenses of renting or leasing office space, warehouse, or other facilities needed for project work.

Indirect costs are expenses that indirectly contribute to the project’s success. They support the overall project but cannot be directly attributed to specific activities. 

Indirect costs can include:

• Administrative overhead: Costs related to executive functions such as project management , office management, accounting, and general administration.
• Utilities: Expenses for electricity, water, heating, cooling, and other utilities required to operate the project workspace.
• Licenses and permits: Costs associated with obtaining licenses, permits, or certifications necessary for project compliance and operations.

In addition to being classified as direct or indirect costs, expenses can also be further categorized as fixed or variable costs:

• Fixed costs remain constant throughout the project, regardless of the project’s activity level. Examples include fixed salaries, rent, and insurance.
• Variable costs are based on the project’s activity level. For instance, materials and labor costs may vary depending on the work completed or the quantity of products produced.

Of course, unforeseen events and risks are inherent in any project. Contingency reserves set aside a portion of the budget to address unexpected challenges that may arise, acting as a buffer to mitigate potential financial impacts on the project.

Project budget management can also include management reserves , which are additional budget allocations that the project manager alone keeps to tackle unforeseen changes that might impact the project’s scope or objectives. These reserves are held separately from the project’s baseline budget and are used at the project manager’s discretion.

Handy guide: You can use our project management key elements guide to discover other fundamental aspects of the PM domain. Additionally, consider obtaining a project management certification to validate your expertise in budget management.

Understanding project budget components lays the foundation for exploring the different types of project budgets and their unique applications.

Different projects may require unique budgeting approaches based on their nature, scope, and duration. 

Here are some common types of project budgets:

Exploring the types of project budgets will pave the way to understanding the key benefits that effective budget management can bring to your project’s success.

Mastering project budget management offers a multitude of advantages for the entire project ecosystem:

• Resource allocation: It ensures that the right people, materials, and tools are available at the right time , minimizing waste and maximizing efficiency.
• Cost control: It empowers project managers to monitor expenses closely, identify cost overruns early on, and take corrective actions to prevent budget derailment.
• Decision-making: It provides valuable insights for decision-making, helping project managers prioritize tasks , choose appropriate solutions, and balance project constraints effectively.
• Stakeholder confidence: It instills stakeholder confidence, fostering trust and support for the project’s success.

Understanding the key benefits of effective budget management sheds light on the crucial importance of implementing project budget management in every project.

Project budget management is the lifeblood of successful project delivery. Without it, projects risk facing various challenges, including:

• Financial uncertainty: Inadequate budgeting can lead to financial surprises, delays, and the project being halted due to insufficient funds.
• Scope creep : Without a clear budgetary framework, projects become susceptible to scope creep, where uncontrolled changes in scope lead to increased costs.

Pro tip: Here is a guide to the top 5 causes of project creep and how to avoid them created by PMI.

• Stakeholder dissatisfaction: Poor budget management may lead to damaged stakeholder relationships and reluctance to invest in future projects.
• Project failure: Ultimately, the lack of adequate budget management can lead to project failure, tarnishing the reputation of the remote project team and organization.

Now that we have grasped the fundamentals of project budget management, let’s dive into the various standard budgeting methods and techniques used to optimize financial planning and control in projects.

What are the common budgeting methods and techniques?

When managing project budgets effectively, having the right budgeting methods and techniques in your arsenal can make all the difference. 

This section explores the most widely used and practical budgeting approaches to help you precisely plan, estimate, and control project finances. 

Let’s dive into the first one: top-down budgeting.

Top-down budgeting is a high-level budgeting approach where the overall budget is determined by top-level management or stakeholders without involving lower-level project managers or teams in decision-making. 

While this method is quicker and more straightforward, a lack of information from those in higher-level positions means that the budget can require further adjustments to ensure that the budget is aligned with project-specific needs.

Example: In a large organization, the executive team allocates a specific amount for marketing initiatives company-wide without consulting individual marketing teams on their particular needs.

In contrast to top-down budgeting, bottom-up budgeting involves collaborating with project teams and managers to create detailed budgets. 

Each team provides their estimates, which are then aggregated to form the overall project budget. 

Example: For a construction project, each department provides detailed estimates of labor, materials, and equipment costs. The project manager aggregates these estimates to create a comprehensive project budget, ensuring accuracy and input from those directly involved.

This method offers greater accuracy and buy-in from those directly involved in the project but may be time-consuming.

Zero-based budgeting requires justifying every expense from scratch, regardless of previous budgets. 

Project managers must provide a rationale for each cost element, promoting a thorough review of all expenses. 

Example: Before starting a new product development project, the project team evaluates each expense, such as research, design, and testing costs, from scratch, ensuring that every budget item is justified based on project requirements and objectives.

While this method prevents budgetary waste and ensures a well-justified budget, it can be resource-intensive and therefore unsuitable for certain projects.

Activity-based budgeting allocates resources and funds based on specific project activities or tasks. 

This method helps identify the financial impact of each activity and allows for a more focused allocation of resources where they are most needed and is particularly beneficial for projects with diverse tasks and resource requirements.

Example: A construction company uses activity-based budgeting to allocate resources separately for foundation work, structural framing, and interior finishing, taking into account the unique costs and requirements of each activity.

As we explore main project budgeting techniques further, it’s crucial to dive into the estimation process—an integral aspect of budget creation. The first method is parametric estimating .

Parametric estimating involves using historical data and statistical relationships to estimate project costs and uses predefined parameters, such as cost per unit or hour, to quickly calculate budgets. 

It is particularly helpful for projects with repetitive elements and well-established historical data.

Example: A software development team estimates the time and resources required to build a new AI-powered feature by analyzing data from similar past projects and calculating the average time it took to complete similar functionalities.

Analogous or top-down estimating relies on past projects’ data to estimate the current project’s budget. 

Project managers use similarities between previous and current projects to make educated guesses about the required resources and costs. 

While this offers quick estimates, the accuracy can vary depending on the project’s similarities.

Example: In a marketing campaign, project managers use data from past campaigns with similar target audiences and objectives to estimate the current campaign’s budget, considering lessons learned from previous projects.

Three-point estimating uses three different estimates for each task: the best-case scenario (optimistic estimate), the worst-case scenario (pessimistic estimate), and the most likely scenario (realistic estimate). 

These values are then used to calculate the expected cost, providing a more robust estimation that accounts for uncertainties and risks.

Example: In a construction project, the time required to complete a wall construction process could be estimated as follows: optimistic estimate – 4 weeks, pessimistic estimate – 8 weeks, and realistic estimate – 6 weeks.

You can combine this approach with other estimation and budgeting methods.

EVM is a powerful technique that uses project scope, schedule, and cost to assess performance. It compares the work completed to the planned value, allowing project managers to monitor cost and schedule variances and predict future performance trends.

Example: If a construction project is 50% complete according to the planned schedule and budget, but the earned value analysis shows it should have been 60% complete regarding work accomplished and budget spent, the project is behind schedule and over budget.

Now that we have explored the common budgeting methods and techniques let’s dive into a comprehensive step-by-step guide to implementing project budget management effectively in your projects.

How to implement project budget management in 8 steps?

Congratulations on reaching the heart of our guide! 

Now that we have explored the critical concepts of project budget management and common budgeting methods, it’s time to implement our knowledge. 

With these eight easy-to-follow steps, you’ll be equipped to create, track, and manage project budgets with confidence and finesse.

Let’s start with the initiation of budgeting processes.

Before diving headfirst into creating a project budget, you should create a solid foundation during the initiation phase. 

The first order of business is to gain a crystal-clear understanding of the project’s objectives and scope. 

A quick tip: You can use our guide about project charter creation to speed up the project initiation phase. 

This step is crucial as it sets the direction for budget planning and ensures that financial resources are allocated to align with the project goals .

Ask essential questions, such as:

• What specific deliverables does the project aim to achieve?
• What are the project’s overall goals, and how will success be measured?
• Are there any budget constraints or limitations that need to be considered?

A well-defined project scope will act as a compass, guiding your budget decisions and preventing scope creep, which can lead to unexpected financial challenges later in the project.

To clarify things, you may also gather historical financial data from similar past projects as a reference point for estimating costs. 

Don’t forget to consider external factors that might influence the project’s financial landscape, such as inflation rates, market trends , and regulatory changes. 

Pro tip: Budgeting is a collaborative effort that requires input from various stakeholders and experts. Assemble a competent budgeting team comprising project managers, financial analysts, subject matter experts , and key decision-makers. 

As the budgeting process is initiated, the next vital step is estimating project costs to ensure accurate financial planning and resource allocation.

Now that we have a solid foundation from the initiation phase, let’s consider estimating the project costs using the chosen budgeting approach. 

Here are the best practices to follow:

• Detailed Work Breakdown Structure: Create a comprehensive WBS for granular cost estimation.
• Involve subject matter experts: Collaborate with SMEs and team members for reliable input (decide their duties and responsibilities based on RACI ).
• Use historical data: Refer to past projects’ data to validate estimates.
• Three-point estimation: Employ optimistic, pessimistic, and realistic scenarios for robust estimates.
• Consider external factors: Evaluate inflation and market trends for accurate estimates.
• Account for contingency: Allocate a reserve for unforeseen events to maintain budget stability.
• Regular review and update: Continuously revise estimates based on project progress and changes.

Handy template: You can easily create a project structure with our WBS template .

Remember that every project comes with a level of uncertainty and risk. 

To safeguard the budget from unforeseen challenges, it’s essential to include contingency reserves. Also, consider identifying risks and uncertainties and quantifying their potential financial impact during cost estimation. 

Another handy template: You can use our risk management plan template to mitigate risks promptly.

Allocating appropriate contingency reserves demonstrates prudent financial planning and enhances the project’s ability to weather unexpected circumstances.

Congratulations! You’ve arrived at a pivotal stage: creating the project budget . 

Let’s start with the key differences between a project budget and a project estimate (they serve different purposes):

• Project budget: A detailed financial plan outlining each component’s specific costs. Guides resource allocation and expense control during project execution.
• Project estimate: Approximate costs based on available information and estimation methods. Provides a high-level view of expected costs before finalizing the budget.

Now we know the difference, let’s focus on budget creation.

To create a robust project budget, break down the costs for each project activity identified during the scope definition phase using the WBS. 

Be thorough in considering all direct and indirect costs associated with these activities. Use data from the cost estimation process, validate with subject matter experts, and evaluate historical data from past projects to enhance accuracy. 

Consider the availability of resources, such as skilled personnel, equipment, and materials, and distribute them efficiently across the project’s timeline. 

Identify resource bottlenecks or potential conflicts early on and adjust the budget allocation accordingly to ensure smooth project progress.

Important: If you are ready to create your project budget, start with our project budget spreadsheet template to avoid starting from scratch.

As you create the budget, be mindful of any limitations imposed by stakeholders, funding availability, or organizational policies. Carefully assess the impact of these constraints on the project’s scope and deliverables and make necessary adjustments to align the budget with the project’s priorities .

Practical tip: To assist you in assessing all the limitations in projects already running, consider using PPM Express as a project portfolio management tool that provides you with a “big-picture” view. 

By visualizing resource data and tracking project progress, PPM Express empowers project managers to make informed budgetary decisions, identify potential cost overruns, and optimize resource allocation for successful project delivery.

After the creation of the budget comes a new crucial phase: obtaining budget approval and communicating with stakeholders. 

First of all, before presenting the budget, tailor your communication approach to cater to the preferences and needs of your stakeholders. 

Some stakeholders may require a high-level overview, while others prefer a more detailed breakdown. Consider using visuals such as charts, graphs, and tables to make the information understandable and engaging.

When presenting the budget, provide context by highlighting the project’s objectives, scope, and anticipated outcomes. 

Pro tip: Clearly outline how the budget aligns with project objectives and supports the project’s success. If stakeholders raise concerns about specific budget items, be open to exploring alternative solutions or adjustments if warranted. 

Stakeholders may have questions, concerns, or requests for clarification regarding the budget. Be prepared to address these queries with confidence and transparency. 

Demonstrating flexibility and a willingness to collaborate fosters trust and strengthens stakeholder confidence in the budgeting process.

To secure approval, emphasize the budget’s alignment with the project goals, thoroughness of the estimation process, and steps taken to address potential risks and uncertainties. 

After the budget approval, with the financial roadmap in hand, it’s time to put your meticulously crafted project budget into action. 

Let’s explore the essential steps of implementing the budget, starting with establishing financial tracking mechanisms.

You might implement tools and systems to record and track financial transactions, expenses, and resource usage in real time. 

Platform recommendation: Consider using PPM Express as a resource management and PPM software to estimate all the aspects of implementing the project in a “one-window” view.

Having precise project budget tracking mechanisms gives project managers and stakeholders visibility into project spending, enabling proactive decision-making and timely interventions to address budgetary concerns.

Regularly compare actual expenses against the budgeted amounts for each activity or work package and analyze any variances and investigate the reasons behind them.

If deviations from the budget occur, take prompt action to understand the root causes and implement corrective measures. Communicate budgetary challenges with relevant stakeholders and collaborate on solutions to keep spending on track.

During the project, unexpected events or changes may impact the budget. As a project manager, you must be prepared to handle these deviations effectively.

• Contingency reserves: Utilize established funds for unforeseen challenges or risks within the predefined scope.
• Change control process: Follow the procedure for significant changes and seek stakeholder approval.
• Constant evaluation: Continuously assess budget project assumptions and update accordingly for changes in scope or resource needs.

With the budget in action, the focus shifts to monitoring and controlling project expenses to ensure financial adherence and optimal resource utilization .

As your project progresses, vigilant monitoring and control of project expenses become paramount to the success of your budget management efforts. 

Let’s explore the essential practices for monitoring and controlling project expenses, starting with regular budget reviews and performance analysis.

Conducting regular budget reviews is a fundamental aspect of effective budget management. 

Set a schedule for regularly reviewing the budget during the project and use this time to compare actual expenses against the budgeted amounts and analyze any variances.

Identify spending trends and patterns to gain insights into areas that may require attention.

If you identify significant variances that could jeopardize the project’s financial health, implement corrective actions promptly. 

To handle unexpected situations, consider the following steps:

• Assess the impact: Analyze the reasons behind the discrepancy and its effect on the project budget and timeline.
• Engage stakeholders: Keep stakeholders informed about the situation and involve them in decision-making to address the issue.
• Reallocate resources: Reallocate resources from lower-priority tasks to cover the additional budget expenses.
• Seek approval for changes: If the cost overrun exceeds the available contingency reserves, follow the change control process to seek approval for budget adjustments from relevant stakeholders.

As we maintain a vigilant watch over project expenses, it’s crucial to integrate risk management strategies with budgeting to safeguard against potential financial challenges.

Risks are inevitable, so anticipating and proactively managing potential budgetary risks is crucial to maintaining the financial health of your project.

To effectively conduct risk management with a comprehensive identification of potential budgetary risks, you should engage with your project team, subject matter experts, and stakeholders to brainstorm potential risks that could impact the project’s financial aspects.

Common budgetary risks include:

• Inaccurate cost estimations lead to budget deviations.
• Price fluctuations in materials or services.
• Changes in scope or requirements affecting resource allocation.
• Delays or disruptions in project execution lead to increased expenses.
• Economic or regulatory changes impacting project costs.

Once you’ve identified budgetary risks, develop strategies to mitigate their impact. Work closely with your team and stakeholders to brainstorm creative and practical approaches to manage these risks effectively.

Pro tip: You can use our risk register template to clarify, systematize, and control all the project risks.

Potential risk mitigation strategies include:

• Building contingency reserves in the budget to address unexpected events.
• Conducting thorough market research to anticipate potential price fluctuations.
• Implementing project controls to monitor expenses and prevent cost overruns.
• Establishing strong vendor relationships and negotiating favorable contracts.

Conducting risk assessment workshops and collaborating with experts to gain deeper insights into risk factors.

Integrate risk management into budget planning throughout the project lifecycle. Consider identified risks during budget creation, allocate contingency reserves, and adjust allocations accordingly. 

Practical tip: You can simplify your risk estimation process with our risk assessment template .

Revisit risk assessments during budget reviews and adapt mitigation strategies, ensuring financial resilience and proactive decision-making.

Remember, effective risk management is not about eliminating all risks but identifying, understanding, and mitigating them to ensure your project stays on track financially should issues occur.

As the project nears its closure, evaluating the budget becomes paramount, integrating risk management insights to gain valuable lessons for future financial planning and project success.

Congratulations! You’ve successfully navigated the intricacies of project budget management, and your project is nearing completion. 

However, before bidding farewell, there’s one critical step remaining: project closure and budget evaluation.

Compare the actual project budget expenses against the budgeted amounts to determine the extent of variance. Identify any areas where the budget exceeded or fell short of expectations. 

Analyze the variances between the actual expenses and the budgeted amounts for each project component. Look for trends or patterns in budget deviations to understand the root causes.

If there are significant positive variances (under-spending), investigate the reasons behind them to identify cost-saving opportunities that can be applied in future projects.

For negative variances (over-spending), explore the factors contributing to them and assess the effectiveness of your risk management and budget control strategies.

Lessons learned are invaluable for continuous improvement in project budget management. Document your budget insights, including successful budgeting practices, areas for improvement, and key takeaways from the budget evaluation process.

Reporting tip: If you’re looking for a reports template to control your budgeting performance, PPM Express has already prepared 200+ Power BI reports.

Capturing these insights systematically provides a knowledge repository that can guide future projects, enabling project managers and teams to make informed budgeting decisions and avoid common pitfalls.

After understanding the essential steps to implement project budget management, it’s time to explore the tools that enhance efficiency and effectiveness in financial planning and control.

Project budget management can be significantly streamlined and enhanced with the help of various software tools and technologies. 

These project budget tools offer features and functionalities that simplify budget planning, tracking, and reporting, making the process more efficient and transparent. 

Here are the best apps for budget tracking and managing:

• PPM platforms: Utilize PPM Express to manage budgets and resources across multiple projects and platforms, gain portfolio -level insights, and align budgets with strategic goals.
• Spreadsheet software: Use Microsoft Excel or Google Sheets for budget planning, tracking, and variance analysis. Visualize budget data through charts and graphs for stakeholder presentations with PowerPoint or Google Slides .
• Project management software: Employ Microsoft Project , Smartsheet , or Monday.com with budget management features. Set budgets, track expenses, and collaborate in real time.

Pro tip: Don’t know how to choose the right project management software? We’ll help you with our step-by-step guide about the process.

• Accounting software: Utilize QuickBooks or Xero for precise financial record-keeping, expense, and budget tracking, and reporting in complex projects.
• Expense management apps: Opt for Expensify or Zoho Expense to easily track and approve team expenses, ensuring accurate budget accounting.
• Budgeting and financial planning software: Leverage Workday Adaptive Insights or Planful for collaborative budget creation, scenario modeling, and real-time forecasting to optimize resource allocation and adapt to changes.

Pro tip: ChatGPT can also serve as a valuable tool for managing project budgets. Take a look at our comprehensive ChatGPT prompts library , which includes prompts for budget and resource management.

As we explore the project budget tools available, let’s also discover key strategies to maintain budget balance and ensure financial success throughout the project’s lifecycle.

Maintaining budget balance throughout a project’s lifecycle is essential for its success and financial health. 

These key strategies maintain budget balance in your project, empowering you to achieve your project goals while staying within financial boundaries.

• Real-time budget tracking and monitoring: Utilize budget management tools for real-time expense tracking and comparison with the original budget. Regularly review financial reports to address deviations promptly.
• Clear budgetary goals and objectives: Establish transparent budgetary goals that are aligned with project scope and objectives. Communicate these goals to team members and stakeholders to foster accountability.
• Regular budget reviews and forecasts: Conduct periodic budget reviews and forecasts to anticipate financial needs and identify potential risks. Use the data to make informed decisions on resource allocation and budget adjustments.
• Resource optimization: Efficiently allocate resources to avoid unnecessary expenses and bottlenecks and assess resource utilization to ensure a balanced project execution.
• Contingency planning : Maintain contingency reserves within the budget to handle unforeseen events and proactively assess risks and have contingency plans in place to manage budgetary challenges.
• Change control and scope management: Implement a robust change control process and manage project scope effectively. Evaluate the impact of scope changes on the budget and seek approval from stakeholders before incorporating them.

To streamline your budget management efforts and maintain budget balance effortlessly, there is no need to utilize a budgeting spreadsheet, consider using PPM Express, a powerful project portfolio management tool. 

With PPM Express, you can optimize resource allocation, monitor budget expenses, and proactively manage risks to ensure your project’s budget stays on track.

Take charge of your project’s financial success with PPM Express !

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Agency Management

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Project Budget Management 101: Manage Your Finances Successfully

Lucija Bakić

December 1, 2023

The three essential activities for successful project management are resource planning, project scheduling, and project budget management .

This guide will discuss everything you need to know about budget management. Keep reading to learn more about budgeting challenges, best practices, and the top software solutions available.

Key Takeaways

• Efficient project budget management includes implementing robust change and risk management to improve project deliverables and overall agency finances.
• Various management methods can be applied depending on your agency and project type. These include traditional vs agile budgeting, bottom-up vs top-down estimating, and value-based budgeting.
• Common project budgeting mistakes and challenges include ineffective scope management, inaccurate estimates due to lack of project data, and minimizing the importance of communication and transparency between project stakeholders.
• Project budgeting software can help you make your project budgeting more efficient with real-time data and automated processes. Consider all-in-one tools to reduce IT overhead and integrate your workflows.

Understanding Project Budget Management

Project budget management is a crucial part of project management. It includes careful planning and estimation, efficient resource allocation, and continuous management throughout the project life cycle. Research shows that only 36% of organizations are likely to deliver projects within budget (PM Survey 2019). What are some of the main challenges associated with successful project budget management, and how can you try to address them?

• Scope Creep: Scope creep is one of the main causes of budget overruns and failed project delivery in professional service agencies. Though there is no way to prevent changes to scope fully, you should ensure that you have the right systems to forecast potential challenges and their results. This is also known as scope management.
• Inaccurate Estimations: As with maintaining project scope, you’re unlikely to achieve perfection when estimating tasks. However, to come as close as possible, referencing reports that compare estimated and actual time can be invaluable. Additionally, consider implementing a slack period for every estimation — over-delivering is better than under-delivering.
• Communication Gaps: Poor stakeholder communication can drive up project deadlines and cause unexpected costs. This includes inefficient feedback processes with clients and information gaps in internal teams. To address this, you can set up best practices for progress updates, such as gathering all task communication in one place.

STREAMLINE YOUR COLLABORATION WITH PRODUCTIVE’S PROJECT VIEWS AND TASK MANAGEMENT

Efficient budget management can reduce costs, build agency-client trust, and ensure better planning and forecasting for future projects.

What Are the Different Methods of Project Budget Management?

We can distinguish between multiple methods for managing budgets, which can be suitable depending on your industry, project type, and team composition. We’ll review some of their features, benefits, and downsides in the below sections.

Traditional vs. Agile Budgeting

Traditionally, income and costs are usually determined annually, at the beginning of the fiscal year. This means budgeting is more rigid, with less opportunity to react to sudden internal or external changes. Agile budgeting, on the other hand, is an interactive process that assigns resources in smaller increments. It supports collaboration and separates the purposes of budgeting into three distinct processes, all of which are handled flexibly: setting targets, forecasting key performance indicators, resource allocation, and cost management (learn more about cost efficiency vs cost effectiveness ).

Top-Down Budgeting

Top-down budgeting uses experiences from similar past projects and breaks up the estimating process from the whole to the granular elements of the project. In practice, this would mean that the lead manager estimates the overall project cost, focusing on major tasks, then gives the estimates to managers handling specific teams, and so on. The benefits of this process are:

• Overall budget costs can be estimated with more accuracy
• Errors in estimation for individual tasks usually don’t cause many issues
• Overlooking smaller tasks also doesn’t impact the budget significantly

Bottom-Up Budgeting

In bottom-up estimating, the granular level of the project is estimated first, not by managers but by team members – for example, a designer would provide hours for how long it takes to create a design and a developer would then estimate the time for coding. The overall project costs are estimated by considering the costs of resources and indirect costs such as administrative costs, contingencies, etc. The benefits of the bottom-up method are:

• More accurate estimating of individual tasks
• Including all members of the project team can increase employee engagement
• Can simplify the process by diving it between multiple people

Value-Based Budgeting

Value-based budgeting considers the potential value that investments or expenses may bring. It addresses the following main questions:

• Does the product or service provide value to customers, employees, or other key parties?
• Is the value provided by the product or service greater than its expense? If not, are there alternative justifications for the incurred cost?

The benefits of value-based budgeting are that it encourages strategic thinking and focuses on the end result, enabling innovation and growth. However, it might be challenging to implement in professional service industries, where the most valuable resources are intangible — employees and the skills they provide. Additionally, value propositions can be subjective, as they can depend on individual judgment.

How Can I Create a Project Budget?

From defining project scope and identifying tasks to selecting the most suitable budgeting methodology, a couple of key processes provide a solid foundation for effective budget management. These include:

1. Project Scope and Objectives : Clearly outline what the project aims to achieve and set boundaries for what is included in the scope and what is not. 2. Tasks and Activities : Break down the project into individual project activities and tasks. This breakdown, often represented in a Work Breakdown Structure (WBS), helps comprehend all the smaller constituents that make up the overall budget. 3. Budgeting Methodology : Find the best way to approach your budgeting depending on project type: from top-down, bottom-up, value-based budgeting to a hybrid of different strategies. 4. Stakeholder Approval : Present the budget plan to stakeholders for approval to ensure it aligns with the desired outcomes. 5. Monitoring and Iteration : Continuously monitor the budget throughout the project life cycle and update it to reflect unforeseen internal or external changes.

Learn more about optimizing your project management budgeting:

What are Some Common Budget Management Mistakes?

Some common budget management mistakes include underestimating costs, ignoring risk assessments, and failing to update the budget. Underestimating costs can happen when data from previous projects isn’t being collected or analyzed – in particular, consider the importance of reports such as estimated vs actual hours.

A similar proposal from the past might have said “this is going to take us 100 hours”, but the reality might have been 60 or 160 hours. That reality is what’s going to drive the new proposal or the lack of even trying for that business. So if the utilization for that project was 160% and we know we can’t get 160% of the price for the project again for the next client, then there’s no reason to step into that deal.

Lore Hamilton , Program and Scrum Manager at Rietta

Learn how Productive helps companies compare profits and drive insights across multiple projects.

It can also be caused by a desire to close a deal with the client at all costs — but be wary of under-pricing your services. It can set a bad precedent for the future, and even make the client think that your services are less valuable. When it comes to risk assessment and budget updating, both can happen due to a lack of real-time data, as well as time and resource constraints. Another possible factor in project budget mistakes is inadequate communication with the project team and stakeholders.

What are Some Tips for Managing a Tight Project Budget?

Here are some project financial management best practices :

• Project Prioritization: According to PMI, projects that are aligned with business strategy are 57% more likely to succeed, 50% more likely to be finished on time, and 45% more likely to stay on budget. This is particularly important in a multi-project environment, where it’s largely impossible to put the same amount of work into every project. Consider the Pareto Principle, where 80% of value comes from 20% of work, and apply it accordingly to your capacity planning .
• Cost-saving Strategies: Consider ways to save on costs without affecting your quality. This usually includes reassessing your expenses and finding areas that you can scale down without negatively affecting your operations. For example, decreasing travel expenses, or switching your workflows to an all-in-one management tool to cut down on IT overhead.
• Continuous Review: By regularly analyzing the budget and updating forecasts, project managers can anticipate and mitigate potential financial issues before they escalate into major problems. This proactive approach allows for timely adjustments in strategy or resource allocation, helping to maintain control over costs. Clear communication with the client is equally important, as it ensures transparency and alignment of expectations.

How Can I Communicate Budget Changes to Stakeholders?

Client transparency is one of the most important factors of successful project delivery. Yet, according to surveys, only 56% of clients believe they have an honest and transparent relationship with their agencies (Havas). Without good communication, the likelihood of getting repeat business and good word of mouth significantly decreases.

I think that in project management there’s a tendency to focus solely on profitability, but it’s inevitable that projects will go over budget, and that’s ok. However, it’s important to have transparency on where that stands, and Productive gives us that visibility.

Amy Nichols , Director of Operations at Seven2

Here are our three tips for ensuring more effective collaboration:

1. Establishing stakeholders: A project manager in a professional service agency will work with multiple stakeholders — ensuring stakeholder buy-in, especially across senior management, is necessary for easier resource reallocation and better project delivery. Additionally, establish the primary point of contact with the client to speed up the feedback process. This is necessary to help the project manager get the resources and support they need to manage their project successfully. 2. Ensuring continuous contact: The client should regularly monitor the project, ideally through weekly meetings. Even if the client doesn’t request regular reports, the agency project manager should encourage them regardless. Yet, surveys show that only 15% of agencies send weekly reports (AgencyAnalytics). Regular feedback benefits both parties by fostering urgency, allowing early resource requests, predicting and avoiding potential roadblocks, and promoting collaboration.

PRODUCTIVE GIVES YOU IN-DEPTH INSIGHTS INTO YOUR FINANCIALS ACROSS MULTIPLE PROJECTS AND CLIENTS

3. Considering goals: When it comes to drafting the terms of the contract, the manager needs to consider potential risks in advance. Clients tend to underestimate the time, budget, and effort needed for project tasks, so accounting for slack at the outset is helpful for further communication. It can help avoid situations where clients are surprised or disappointed by actual project progress and facilitate requests for additional resources or funding. See more : Mastering Agency Project Management: The Ultimate Guide

How Can I Track Project Expenses?

The best way to track project expenses is to utilize a software solution that streamlines repetitive processes and helps deliver accurate data. Some key features to consider are: budgeting, client billing, project resource planning and forecasting, and essential project management capabilities with billable hours tracking. According to recent research, only 5% of agencies are largely dependent on spreadsheets, with a vast majority (52%) using disparate tools with some extent of integration, and only 14% utilize an integrated platform that enables real-time analysis ( SoDa & Productive ). Using an integrated tool to support your budget management can:

• Streamline Processes: With comprehensive software, you can support the entire project life cycle on one platform, from winning deals to billing your clients.
• Enhance Collaboration: Cross-functional teams, in particular, can profit from using an integrated platform, as it allows simpler knowledge sharing and decision-making.
• Centralize Data : All-in-one tools consolidate all project-related data in one place, which enhances accessibility and data accuracy.

We used to have a project management tool, a time tracking tool, a support tool, a way we handled opportunities and sales-driven processes. Those were all separate tools that we had, and it wasn’t good. It also meant that all that data was being lost every time we switched between tools, or we had to find a way to normalize the data between them. And now, the fact that it’s all in one, it’s really a game changer.

BRYAN CASLER , VICE PRESIDENT OF DIGITAL STRATEGY AT 4SITE INTERACTIVE STUDIOS

What Are Some Tools That Can Help Me Manage My Project Budget?

Some different types of tools that can be used to manage your budgets are:

• All-in-one tools  centralize all project management and budgeting processes, enabling seamless integration of budget planning, tracking, and reporting within a single platform.
• Financial management tools are specialized software designed to streamline financial health and budgeting, with minimal support for other agency operations such as project or task management.
• Billable hours trackers help manage contracted hours vs actual hours to support accurate client billing and revenue recognition .

Let’s look at the best options from each category and compare their benefits, downsides, and customer reviews.

1. Productive – The Best All-in-one Agency Management Software for Effective Budgeting

Productive is a comprehensive agency management software for agencies of all shapes and sizes. It’s tailored to support your daily operations with various features, from time tracking and project management to extensive resource planning and budgeting.

productive helps minimize costs by balancing your agency’S resources

Key features include:

• Time Tracking : Productive helps manage billable and non-billable hours with its integrated time management. Options include an integrated timer that can be started from tasks or desktop, retroactive entry, and automatic creation based on booked employee hours. Use time approvals to decide whether hours are billable or not.
• Financial Management : Productive helps you get full control of your project budgets, including hourly, fixed, retainer, or hybrid. Forecast your overruns, monitor budget burn, and check your profitability in real time with Productive’s Profitability view. Set up automated warnings for spending to make sure you’re always on track.
• Billing & Purchase Orders : Productive’s budgeting supports client invoicing and expense management with purchase orders. Create and send brand-friendly invoices directly from the platform, and set up automatic payment notifications to ensure you’re paid on time. With purchase orders, you can manage external expenses and delivery dates.
• Reporting : Productive provides more than 50 agency-focused templates for simplified reporting. You can add specific parameters with custom fields and convert your numbers to easy-to-underst

Additional features include: Project Management , Resource Planning , Sales , Docs, Automations . Integrations include: Xero, QuickBooks, HubSpot, Breathe, Zapier, Slack, Jira, and more.

Why Consider Productive as Your Project Budgeting Software?

Productive can be a great choice if you’re looking to optimize and streamline your budgets. Thanks to its integrated approach, you can standardize your workflows on one platform to get the full picture of your project and resources. Thanks to its advanced reporting and financial forecasting, you can ensure that you’re making informed project decisions. Client communications are also simplified, as you don’t need to spend hours to create reports. Finally, you can ensure continuity with previous financial practices thanks to Productive’s integrations with popular accounting tools, such as QuickBooks and Xero.

Because of the information that’s available now, we’re doing more because Management is looking at the information and dissecting it even further. “Why did those 10 projects make a 42% profit, and that one made 20%?” Before using Productive, we could never understand where differences in profit were coming from.

Patric Osburn, Service Operations Manager at Quintica

When to Consider Alternatives

If you’re looking for a specialized tool that supports one part of the project management budgeting process, Productive might not be your best solution. However, consider that investing in an all-in-one solution might be a more time and cost-effective solution in the long term.

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2. Sage Intacct – A Complex Financial Management Tool

Sage Intacct is a financial management software from Sage Group, the leading provider of ERP for professional services and other industries. This includes construction, retail, healthcare, and more.

• Real-time financial reporting and analysis
• Streamlined bill entry and payment automation
• Streamlined internal communication with Sage Intacct Collaborate
• Security and compliance features

SOURCE: SAGE INTACCT

The Benefits & Downsides of Sage Intacct

Sage Intacct is a robust financial management solution, and it can be suitable for larger enterprises. However, as the tool is not geared towards professional services only, but a large variety of industries, you might find that not all of the features suit your workflows. Additionally, users frequently comment on Sage Intacct’s price point and learning curve. For a more streamlined and user-friendly option, an all-in-one tool might be better.

3. Toggl Track – A Streamlined Time Management Solution

Toggl Track is a specialized time tracking software for agencies that streamlines budgeting with accurate timesheets and simple-to-access time management data. Key features include:

• Simple timesheet creation and exporting
• Project profitability tracking
• Exportable data for easy client invoicing
• Integrations with various productivity & project management tools

SOURCE: TOGGL TRACK

The Benefits & Downsides of Toggl Track

The biggest benefit of Toggl Track is its lower price point and simple user interface. This makes the tool a suitable choice for smaller teams and startups that are just starting to think about billable hours management and key agency metrics. However, Toggl Track lacks the advanced support that is necessary for teams with more complex projects and financial needs. Therefore, fast-growing agencies might quickly out-scale this solution.

How Can I Prevent Project Budget Overruns?

The key to preventing project budget overruns is to identify early warning signs such as frequent changes in project scope, delays in key deliverables, or escalating costs for certain tasks. These indicators require immediate attention to prevent minor issues from turning into significant problems. Strategies for mitigating overruns include extensive initial budget planning and regular monitoring of expenses against the budget. Another tip is maintaining a contingency reserve:

It is common practice for project managers to ask for some percentage of the overall budget, such as 10% , to be used as contingency reserve.

Source: PMI

It’s crucial to consider and implement a change management process, as this is one of the primary causes of budget overruns. This involves evaluating the impact of any change request on the project’s budget and timeline and only approving those that are essential or add significant value. This can be streamlined with project management software – for example, Productive’s Resource Planning lets project managers reallocate their resources in real time and check the impact on budget and profit margins.

ALLOCATE YOUR HUMAN RESOURCES WITH PRODUCTIVE’S REACTIVE RESOURCE PLAN

Using Project Management Budgeting to Improve Project Outcomes

Effective project budget management significantly enhances project outcomes by aligning financial resources with strategic goals. Insights on actual cost vs cost estimates can help you make better decisions for your agency’s financial health, address the weak points in your processes, and get accurate budget estimations.

We ended up terminating contracts with two of our oldest clients after only a few months of using Productive. We thought that we were at least at zero with them, or that we had some small earnings, but it turned out that we were losing money because the money they paid us did not cover salaries, fixed overhead per hour, and variable overhead per hour.

Ilija Brajković , CEO AT Kontra Agency

Good project budget management also ensures that your current and future engagements are more successful. Delivering higher quality project deliverables within the project estimate timeline leads to satisfied project stakeholders. This can help you renegotiate your hourly rate or gain new business opportunities from positive word of mouth.

The Best Practices for Project Budget Management

To summarize, effective managing of your project budget can help you improve current and future project performance, driving overall agency growth. The primary best practice is ensuring frequent stakeholder communication to foster transparency and collaboration. Then, regular forecasting, budget review, and updating can ensure you’re never caught off guard. Allocating contingency funds can help your risk management efforts and promote proactivity. Finally, leveraging software solutions as a tool can significantly enhance the efficiency and accuracy of these processes. To achieve this, book a demo with Productive, the all-in-one management software that drives project success.

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The Practical Guide to Project Budgeting

Creating a project budget may be overwhelmin, if you’ve never done it before.

In this article I’ll show you the process. Afterwards you’ll be able to set up a solid budget on your own.

Let’s get started.

The first question I’ll answer is:

What goes into a project budget?

• labor of internal resources
• labor of external resources

Goods and services

• materials used for production
• services purchased
• consulting or legal fees
• accommodation
• visa fees and services charges

Investments

• computer hardware
• intellectual property

The major part of every project budget will be labor cost.

Labor cost can be broken down into:

• cost of internal resources
• cost of external resources

First you need to estimate the effort of every person involved in the project, both for internal and external resources. What you need to prepare is a spreadsheet with the number of days per month each resource works on the project. If you don’t have an appropriate template, I recommend you get my project budget template .

So, how do you figure out the effort for each member of your team? You talk to each person and ask: “What will be your effort for completing X?” Your team members usually know best how much time they need (read also: how to set deadlines in a project ).

A word of warning: Be skeptical about estimations. Some people tend to overestimate while others underestimate the amount of time required. I like to challenge people when my gut tells me the numbers are unrealistic.

Asking people for an estimate doesn’t always work. Some tasks are too complex to make a quick estimate. In those cases you need to break those tasks into pieces and estimate each piece separately.

Here’s another estimation method which works well for repetitive tasks: Assume you want to manufacture 1000 cars. Instead of trying to estimate total effort in one go, you estimate the time required to produce a single car. Then you multiply that number by 1000 and you have the total time required for the entire production cycle.

Recommended article: Read my guide on estimating effort hours in projects .

From labor effort to labor cost: how to make the calculation

Now you have estimated labor effort. How do you get from effort (measured in days) to currency values? You have to put a price tag behind each day and make a simple multiplication:

labor cost = # effort in days x $ cost per day

Now you probably ask yourself: “How do I know what to charge for each day?” That’s a question either HR or your internal accounting team can answer. Companies usually have tables with cost rates for their staff, broken down by department.

For external resources like freelance developers or consultants, you usually have a fee agreement which states the rate charged per hour.

Cost of goods and services

Next, let’s have a look at project-related expenses for material and services.

Does your project require any goods or particular services to be able to reach the target? Then you need to include those in the budget plan.

Examples for goods:

• material required for prototyping (e.g. in engineering)
• low-value items (e.g. office supplies)

Examples for services:

• rental fees
• legal advice

Travel expenses: They can eat up your budget quickly

Travel cost can easily amount to hundred thousand dollars or more, if the project involves a lot of traveling to faraway countries. Therefore, you must do a good job in estimating the scope and frequency of business trips.

Travel expenses are:

• food and drinks
• services charges payable to travel agencies

Estimate the number of business trips and set a limit of how many people are going to be on the trip. This makes it easier to forecast travel expenses. Remember also that business trips are no fun events. Only people who are absolutely required should be allowed to go on the trip.

Example: Let’s say you’re running a project at your Mexican subsidiary . Then you can estimate your travel requirements in the following fashion:

Trip #11: Initial scoping. 5 people who will stay for 1 week.

Trip #2: Business workshop. 12 people who will stay for 2 weeks.

Trip #3: Functional test: 12 people who will stay for 2 weeks.

Trip #4: GoLive: 10 people who will stay for 2 weeks

Figure out airfares to your destination as well as hotel rates, put everything into a spreadsheet and do the multiplication.

Also note that accommodation and flight fees can vary significantly depending on the season. Go to Google Flights or Priceline.com to check flight and hotel prices. Your calculation should thus not only consider current rates but expected rates at the time of travel.

Investments: are you getting machinery, computers, or anything of the like?

Investment goods – also called assets – are items a company uses for its production or provision of services. Think of expensive machinery, vehicles, but also computers and software.

Examples of investment goods:

• software licenses

Investment expenditures are handled slightly different in a project budget: the purchasing value isn’t recorded as a one-off expense but distributed over the lifetime of the asset.

Example: For the latest project, your company buys a new truck worth $400’000. The truck is purchased in May 2018 and it’s going to be used for 7 years. Now, we don’t record the $400’000 as an expense. Rather, we have to spread the amount over the truck’s total lifetime, which is 7 years or 84 months. The monthly expense is $400’000 / 84 = $4’762. That’s the number that must go into your budget.

Should your project budget include taxes?

No matter what your project is for, almost always some purchases have to be made. Think of materials or services that are going to be used in some form or another. You hire a consultant, you purchase physical items like screws or cables. It doesn’t matter. And companies have to pay taxes, most importantly VAT (value added tax). The question you have to answer is whether the project budget should show the cost with or without taxes.

In 99% of cases you should exclude tax. Why? Most companies are able to recover tax on goods purchased. Therefore the tax will not permanently reduce a company’s profit and thus shouldn’t be factored into the budget. In case a company is unable to recover taxes (for whatever reason) for a specific item, you should add the tax amount into your budget. Your accounting team can answer the question whether to include or exclude tax. Just ask.

Create the project budget overview

Finally let’s create the project budget. You take the cost that you’ve estimated in each of the categories and put them into a spreadsheet.

If you haven’t checked out my project budget template , I recommend you do it now. People have told me it has saved them hours when setting up new projects.

Read next: How to keep track of project costs

I have written an article on tracking project expenses , which I recommend if project cost management is new and scary to you. It’s actually not that complicated — you just need to learn the process.

Hi! I’m Adrian, founder of Tactical Project Manager and Ex-Project Manager with over ten years of experience in project management. Led large-scale IT implementations and business projects. I started Tactical Project Manager to offer you a straightforward and pragmatic approach to project management, enabling you to lead any project with confidence.

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Project Management

How to manage a project budget in 7 easy steps.

Senior Content Marketing Manager

June 22, 2023

Budget management has a bad rap: People associate it with boring spreadsheets and lengthy expense reports . But managing project budgets is actually an art form—and, for those who work at agencies, essential to your company’s business model.

A good project budget is more than just dollars and cents–it’s context. It’s a tool to help tell the story of what your team is doing and how well they’re doing it.

This approach to project budget management helps you see, in real-time, what’s working and what’s not. It also gives you the hard numbers to evaluate your process and level up your budgeting skills over time. Here are the steps you should take to set and track every project budget you’re in charge of.

What is a Project Budget?

1. make a step-by-step project outline, 2. list every required resource, 3. assign a cost to each resource, 4. add a contingency, 5. document your budget, 6. get your project budget approved, 7. monitor (and adjust) your budget, 5 templates for managing project budgets.

A project budget is a financial plan that outlines the estimated costs of all the activities required to complete a specific project. It includes all the resources required to complete a project, such as materials, equipment, labor, and other expenses.

A project budget isn’t “$20,000.” It’s a clear breakdown of how you’ll spend that $20,000 and why you’ll spend it that way.

Theoretically, a new hire should be able to walk into your agency and execute on the budget you’ve created without further guidance. Unfortunately, it’s not exactly easy without the right approach and tools.

What should be included in a project budget?

As a starting point, your budget should include three things:

• Total project costs : Labor, materials, and equipment
• How resources will be allocated : Project budget allocations are typically split up by deliverables 
• A project timeline : This breaks down when you expect to spend the money associated with each project deliverable

We’ll go into more detail on how to build each of these components into your budget shortly.

Why is managing a project budget important?

Because your budget includes context about your project, it can be used to guide and track your team. Good budget management can help you with: 

• Project scope control: All agency project managers have dealt with that one client who keeps changing their expectations. Active budget management allows you to see whether these modifications fit within the original project scope or whether you need to have a discussion to reset expectations.
• Project Cost control : Keeping track of your spending as you go will flag overages early before hitting a point where you don’t have enough money to finish the project. Cost changes are often out of your (or your team’s) control, but how you address them is in your control — if you catch them in time. 
• Progress tracking: When project budget line items are tied to deliverables, it’s easy to see where you are on each task. If you haven’t spent the money for, say, the fonts you need for the webpage, you’ll know the design stage isn’t complete.
• Planning future projects: Watching your project budget progress will help you make a stronger estimate for your next project. You can see where your projections don’t match reality and improve your forecasting skills.

How to Manage a Project Budget in 7 Steps

Now that you know how complex project budget management is, you might feel a little intimidated. Don’t worry! With a bit of planning, anyone can build and manage project budgets. Let’s go over how to build and manage a budget step by step.

You’ll want to start with a full project plan that’s made in collaboration with your project team and any stakeholders. You won’t even have numbers to work with at this point — and that’s okay! A good project budget requires you to know the entire project scope and every deliverable your team will be accountable for. 

Check out these expense report templates !

Just because we’re calling this an “outline” doesn’t mean it’s skeletal. You’ll need to break every deliverable down into a step-by-step progression so you can see every resource that will be necessary. 

Say your project is a  social media advertising package. You’ll need team members to: 

• Concept the campaign
• Write and edit the copy
• Curate and purchase stock images
• Execute the campaign
• Track and report performance

Bring in your team members to check over each deliverable’s subtasks.  They’re the ones who routinely create such deliverables, so they know everything that goes into making the final product. 

Bonus: Bookkeeping templates !

Time is money, and so are resources like freelancers, training, and research. Every step your team takes will require at least one of these things. 

Under each subtask, make a list of every resource required. Here are some common project resources:

• Team members: How many internal employees will be working on the project and for how much time? Will you need to hire freelancers as well?
• Equipment and licenses: Will you need access to any physical equipment or online tools? Will you be purchasing them outright, or paying a licensing fee — and if it’s the latter, for how long?
• Training: What skills will your employees need to learn that they don’t already have? What resources will they use to learn those skills, and how much time will it take?
• Research: Will you need to purchase industry research or pilot studies to learn what your target audience will respond to?
• Travel and hospitality: Is anyone planning to fly out to a client’s location, host business lunches, or hail a rideshare to handle project-related duties?
• Professional services: Will you bring in consultants or other experts to guide your project?

You may have other expenses, like procurement and IT, tied to your project budget, but the list above covers the most common resources required for teams like yours.

Related: Price list templates !

Once you’ve broken down your project into every resource you’ll need, it’s time to figure out what all these resources will cost. 

There are four ways to make an estimate for a project budget. Read the method descriptions below, and choose one based on your agency structure and the available tools. 

Process 1: The top-down approach

If you already have the dollar amount that’s allocated for the project, your job is to determine what you can achieve with the money you have. Assign a certain amount to each deliverable based on how resource-heavy each step is. Then, project managers should allocate all subtasks.

Budgeting with a top-down approach may require you to pare down the project’s scope and think of more cost-effective ways to meet your objectives.

Process 2: The bottom-up approach

Assign a dollar amount to each resource you listed in the last step, then sum everything up to get the final project budget. You’ll need to estimate work hours, freelancer rates, and tool costs to get an accurate number. Ask your team (or project managers) for help if you’re not sure what’s reasonable for any given item.

Process 3: Analogous

Find a previous project that’s similar to the one you’re budgeting for now, and use the actual costs from that project as estimates of what you’ll need for this project. This method only works if 1) your past project costs included comparisons between estimated and actual costs and notes of any unexpected expenses and 2) the two projects are virtually identical in scope.

Process 4: The three-point approach

This method asks you to make three different budgets, then average them. You’ll need to calculate:

• A best-case scenario budget: Every step is completed in the shortest amount of time possible, and all necessary resources can be found at the lowest fair rate. 
• A worst-case scenario budget: You fall behind and have to pay overtime or rush fees, you have to buy more expensive equipment, and so on. 
• A most-likely scenario budget: People stay mainly on schedule, though a few steps take a bit longer than planned, and you don’t get the lowest prices, but you’re not paying excessive fees either. 

Take these three numbers and average them to calculate your total budget. Consider weighting one higher than the others, depending on which scenario you think is most likely.

If you’re torn between project budget estimate methods, don’t sweat it! You can always combine them. For example, you may use bottom-up estimates to build your project budget for the three-point method. 

Bonus: Budget proposal templates !

Contingencies are the “oh no” fund in case you really do hit that worst-case scenario budget. It’s an essential part of your cost risk management plan .

Typically, your contingency fund will be 5-10% of your total project budget. You may not need to dip into your contingency funds often, which is great!

But every project budget should have them, just in case.

Bonus: Business model canvas template

Once you have all your deliverables and the numbers attached to them, it’s time to make an official budget document. We love using ClickUp for project budgeting (and we’ve shared some useful templates below!). 

If you’re not using ClickUp (yet), we recommend you use a free project management software rather than a spreadsheet. A good app makes it easier to organize and update all the information you need to include.

And speaking of, your project budget document should include: 

• Each deliverable (and all subtasks for each), along with final due dates plus internal deadlines. 
• Line items below each subtask with every resource required and its expected cost. 
• When you expect to spend the money for each resource based on your project schedule.
• A space to list actual costs and expenditure dates, so you can update your budget as the project unfolds. 
• Whoever is responsible for each line item: Who will be gathering travel receipts? Who will be overseeing freelancer invoices?

After you have all that information, add up the total costs for each deliverable or milestone to calculate your projected project budget. 

And as one last step, ask your team members working on the project to review the budget (again) to make sure you didn’t miss anything. It’s much better to catch a mistake at this stage than mid-way through the project budgeting process.

You may pitch your budget to a client or simply submit it to your boss or other stakeholders. Tailor your ask to the audience.

But make sure you include details that show how your budget will lead to the desired project results — and how any decrease in the funding will necessitate scope changes. The work you’ve done in the previous steps will make it easy for you to justify your project budget request. 

Your budget can only help you track your progress and control costs and scope if you keep it current. You don’t need to update your budget right after every purchase, but you should set aside time to add expenses and gauge whether you’re straying too much from the estimated costs.

The optimal update frequency will vary based on the length of each stage and/or time between each deliverable. A budget that includes a lot of social media ad spend may need to be updated every few days; a project budget for a 200-page website may be fine with a weekly or biweekly check-in.

If you do catch serious mismatches between your budgeted and actual spend, move into mitigation mode. First, figure out what went wrong. Did you miss a subtask that took your freelancer an entire day to complete? Did the client rip up their project plan midway through the deliverable, so you had to backtrack? 

Whenever you identify an error, look to see if it’s been replicated in other stages and deliverables. Finally, check whether your contingency will cover the unexpected overage. If not, can you reallocate resources or find a way to use fewer resources for any other subtasks your team hasn’t started on yet? 

Or do you need to discuss other options? 

These discussions may involve your bosses or the client, and they’re not fun to have. But the sooner you have them, the more likely you are to find a solution that will at least work for everyone, even if it’s not ideal.

Make sure any changes are recorded in your project budget along with notes so you can remember what went wrong and plan to spend accurately in the future. 

Check out these general ledger templates !

By this point, you know budgets are complex — so why not make your life easier with a template? You’ll save time with all your setup and have access to ClickUp’s excellent Dashboards to help visualize your project budgeting and progress. 

Here are five of our favorite free ClickUp templates that will make you a budget management pro in no time:

1. ClickUp Project Outline Template

Since the budget process starts with a full project outline, why not start your process with ClickUp’s Project Outline Template ? It has space for you to add everything you need for pre-budget planning:

• Project Background
• Project Introduction
• Constraints and Assumptions
• Key Deliverables
• Budget and Investments

This won’t be the only template you need to rock for a project budget, but it will be the first template you should use during your budgeting process.

2. ClickUp Project Resource Matrix Template

Cost estimates require math…a lot of math. ClickUp’s Project Resource Matrix Template guides you through those calculations by telling you where to put numbers and calculating the final amounts with formula fields . 

Use it to estimate costs for all types of resources (labor, equipment, overhead, SaaS tools, and raw materials), so don’t be afraid to use it for even the most unlikely projects. The views on this template include:

• Getting Started Guide
• Kanban Board
• Resource Input Form
• Resource List
• Costs Table

These features make it easy to input cost estimates, project plan your resource management , and see where you should be budget-wise at any point in the budget timeline.

3. ClickUp Project Deliverables Template

By this point, you know how important it is to break down your project budget by deliverable (and then by subtask). ClickUp’s Project Deliverables Template includes custom fields for budget, remaining budget, and expenditures so far.

It offers six views—including a Gantt view and a project budgeting List— and an automation that will post a comment when any custom field changes from a team lead or project manager.

In other words, this template is an agency-ready live budget tracker. Managing budgets will be a breeze with this template on your side.

4. ClickUp Project Request and Approval Template

If you want a more advanced and in-depth tracker than the Project Deliverables template, turn to ClickUp’s Project Request and Approval Template . 

• It comes with pre-built List, Kanban, and Gantt views so you can organize your to-do list and see your timeline at a glance.
• The pre-saved List only requires you to add details, so you’re not building your project from scratch.
• There are six Custom Fields in ClickUp , including budget, spent, and budget remaining.

You can set due dates and priorities — which can help guide budget adjustments if they become necessary. 

5. ClickUp Project Cost Management Template

If you have a lot of project budgets to manage, use ClickUp’s Project Cost Management Template for a high-level view of everything. This template comes with six statuses (to cover everything from new projects to evolving budgets to completed projects) and six views:

• Projects List
• Project Costs Table
• Approval Process Board
• Project Cost Request Form

It’s the one project budget management template to rule them all—and it will keep you ridiculously organized.

Managing Project Budgets: Best Practices for Success

Once everything is delivered and all your bills have been paid, it’s time for you to revisit the budget and make notes on any changes you made during the project. You can expect the lessons you learn to apply to similar projects in the future. 

We talked about how each budget tells the story of your team’s work. A clear and detailed helps you remember the details of a project even if you don’t get around to the review right away.

See line items you added after the fact, project tasks that took more resources than expected, and adjustments you made mid-stream to keep everyone on budget. Create a document (or use ClickUp’s Project Post Mortem template ) to keep track of your insights.

Review this information before you start each budget so you don’t make the same mistake twice. Budget management success means project success…so take the time to build a project budgeting process that’s thorough and thoughtful. 

Combine your knowledge with our great tools to build budgets that will lead to successful projects. Get started with ClickUp today!

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Budgeting In Project Management 101: The What, Why & How

Ever heard of the saying “follow the money”? Project management budgeting is the key to successful projects and happy clients. 

The definition of budgeting in project management is basically estimating how much a project will cost and then tracking billable expenses as you go. This requires a working knowledge of how long tasks take, what resources you need, and how much similar projects have cost in the past. 

Keep reading for the what, why and how of budgeting your next project successfully!

Overview on Project Management Budgeting

Let’s start by answering “ What is project budget management ”? 

Project management budgeting is when you figure out how much money you need to complete a project. This is either for your own business, or for your client projects. 

The project manager is responsible for giving managers or clients an estimate for how much a project will cost. From there, you can figure out whether you need more time, materials or resources to complete the project to a high standard. 

Project management budgeting uses tools and systems like:

• Time trackers to track budgets, targets and hourly retainers  
• Reporting software to give feedback to client and team members as you go 
• Risk analysis and expense scenarios based on other similar projects 
• Working with the accounting team
• Getting clients to give their budget and matching it to your services 
• Assigning the right team members according to their strengths and hourly rate

Importance of Budgeting in Project Management

The first thing clients will ask when they want you to manage a project ? 

“How much will it cost?” 

All business endeavors require a significant amount of logistical planning. However, the project budget is the life blood. Without a clear idea of how much your clients can and will spend, projects will be less of a growth investment and more of a sinkhole. 

Project budget tracking allows you to 

• Give your clients an accurate estimate of costs 
• Create invoices without any surprises or hidden costs for the client 
• Figure out how many hours your client can afford 
• Bring in third party contractors to help complete the work
• Pay for any software or materials you need to get the project done 

6 Methods of Budgeting in Projecting Management

There are several approaches you can take to estimate a project budget. The method you choose will depend on factors like whether you’ve completed similar projects, your billable versus non-billable hours , and how much information you have about the scope of the project. 

Analogous Estimating

Analogous budgeting gives a budget estimation based on similar projects you have completed in the past. This is best for when someone needs a quick price gauge. An analogous estimate will give clients or team members a basic idea of costs, but will probably need to be updated along the way. If this is a unique project, you will probably need a different method for budgeting. 

Parametric Estimating

Like analogous budgeting, parametric budgeting helps estimate a budget based on similar projects. The difference is that the parametric method is a quantitative approach that takes various factors, prices and historical data from other projects and applies it to the current one. For example, a company might want to estimate the cost of installing new software. This would require parameters such as 

• How many interfaces the company needs
• The fixed price of installation 
• Hours historically needed for testing and revising 
• Average number of days it usually takes for a software company to install their product 

Parametric estimating gives a slightly more accurate budget based on historical data. 

Top-down Method

The top-down method of project budgeting is when you start with a total project budget. From there, you see how much you can allocate to each part given the scope of the project. This would be an appropriate method if the client has a set budget or you are working with a grant for example. 

Bottom-up Method

The bottom-up method is essentially the opposite of the top-down method. Instead of starting with the total allocated budget, you have a list of all the resources you need, the approximate price of each one, and then calculate the total budget based on what is needed. From there, you can re-analyze the scope of the project, or add more if there is money leftover. 

Three-point Estimate

This project budgeting method provides a well-rounded analysis. It takes the most expensive, the least expensive and the most likely budget scenarios. This requires a certain amount of data and risk analysis and gives clients a better idea of what to expect as the project progresses. For example, in the most expensive scenario you might include factors such as clients requesting multiple calls which count as billable time. 

Earned Value Analysis

Earned value analysis is almost like an amalgamation of the other budgeting methods. Once the project manager gives an estimate and the client signs off on it, an earned value analysis keeps track of the budget at each stage. This helps keep costs as close to the estimate as possible by tracking hours, targets, and any unexpected expenses. 

Tips for Accurate Project Management Budgeting

Successful project management budgeting requires planning, adaptation and open communication. Nobody wants to be blindsided by hidden costs! To ensure positive client relationships in your next project, try these tips when negotiating the budget. 

Keep Open Communication With the Stakeholders

Clients pay good money to get a job done. They deserve to know how their budget is being spent! Projects can change over time, and therefore the original budget estimate may change over time. Keeping open communication both ways is the simplest way to keep everyone happy. If you are using a time tracking app like MinuteDock, you can even create a private client dashboard where they can check in on their project without taking up non-billable hours. 

Adapt to Changing Situations

To get the work done to the best of your team’s ability, you might need to adapt as you go! Maybe someone thinks of a faster way to do something, or one stage of the project is taking longer than expected so you need to cut costs somewhere else. 

Focus on The Organization's Needs

Whether the project budget is for you or for your clients, make sure you stick with the overall goals. Everybody wants to win, and keeping their needs at the front of your budget planning project management will build trust and rapport while you finish the project. 

Track Budgets in Real Time

Time tracking is your secret weapon for staying on budget for each project. Using an app like MinuteDock lets you 

• Set targets and budgets on a daily, weekly or monthly recurring basis - perfect for retainer agreements or agreed workloads
• Set up hourly targets for work so you can keep on track as your team works. You can also set budgets and dates to get your projects completed on time
• Watch budget progress updates instantly as you and your team track time, letting you & your team see their status at a glance.

Final Thoughts

Budgeting is crucial for project management. It ensures that you are completing projects efficiently and keeping clients happy- all the things a growing business should aim for! 

Want to make project budgeting even easier? MinuteDock is designed for teams to help them track time, stick to budgets, and deliver exceptional projects for their clients on time, every time.

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How to manage your project budget: a step-by-step guide

Blog: monday project management blog.

It’s no secret that a good project budget is key to successful project management. Along with completing projects on time and within scope, staying on budget is one of 3 essentials for a successful project.

But just 34%  of organizations say they always or mostly complete projects on budget — a drop from last year, where 43%  of organizations said they regularly completed projects on budget.

If your projects struggle to stay on budget, then this is the guide for you.

In this article, we’ll go step-by-step through creating an effective project budget, with actionable tips you can use.

What is a project budget?

A project budget is the total cost of all the tasks, activities, and supplies associated with an entire project.

It’s one number that all stakeholders and participants agree to stick to as they complete project deliverables.

But a project budget is also a document that defines exactly how that magic number will be used.

By identifying how the project team will allocate spend across tasks and activities, managers and stakeholders can better track and control project costs.

Your project budget should be finalized before your project begins. In most cases, you won’t be able to increase your budget unless the project requirements change.

What does a project budget include?

Let’s take a closer look at precisely what a project budget entails.

Project budgets can be detailed, complex documents. But that level of detail helps you create an accurate budget that keeps your project within scope.

Your project budget will cover several categories of costs. High-level breakdowns, like this one in a monday.com project budget template , are helpful, but you’ll need to break down the budget even further.

Here’s a closer look at the types of project costs you’ll need to include in your budget:

• Labor cost:  salaries and wages, benefits, and payroll taxes
• Materials:  equipment, software, and other supplies
• Transportation:  travel costs and other logistics
• Research and consultants:  experts or specialized teams like legal or development
• Training:  courses, conferences, or facilitators for project-related skills and tools

Not every project budget will use these categories in the same way. For example, a construction project is likely to focus far more on materials than a merger or acquisition project. A technology implementation project might allocate more budget resources to training the workforce than on pure labor costs.

Why is a project budget so important?

Project budgets are essential communication tools. They promote visibility between the project team and key stakeholders.

As your project progresses, you’ll use your project budget to track how your actual cost stacks up to your estimated cost and convey that information to stakeholders.

If project requirements change, your budget may also change to reflect the new costs.

Here are a few other reasons why a project budget is so critical:

• Project budgets reflect the progress and success of the project  by tracking budget usage as the project continues.
• Project budgets help secure funding  by providing transparency into how budget resources will be used.
• Project budgets help companies operate efficiently  by planning costs ahead of time.
• Project budgets give insight into future project costs  by providing a historical record of the actual cost of the project.  

For successful budget management, it’s in your best interests to take your time and build out an accurate budget as part of your project plan. 24%  of project managers say unrealistic budgets negatively impact projects, leading to high costs or other problems.

But a carefully crafted cost estimate for your project budget will set you up for success from the get-go.

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7 steps to creating and managing a project budget

Creating a project budget is an intensive process, particularly if you’re working on a long-term or high-budget project.

Some project management methodologies and frameworks outline preferred approaches or techniques for estimating a project budget. For the steps outlined below, we’ve aligned with the Project Management Book of Knowledge guidelines on project budgeting.

1. Outline your project tasks, milestones, and supplies

Before you can estimate costs for your project budget, you need to know exactly what your project is intending to accomplish.

Take a look at your project plan  to identify the tasks, milestones, and activities your team will need to complete. You can also collaborate with the project team or other stakeholders to make sure everyone is on the same page.

Use a collaboration tool like monday.com workdocs to compile everything in one place. While a document like this won’t serve as your final project budget, it’s a good way to collect everyone’s input and build a full picture of your project goals.

At this point in the project budgeting process, you’re not estimating any real costs. You’re just making a list of everything you need to determine costs.

Compiling this list will also reveal other pieces of information you need to find. For instance, do you have a finalized project scope? A list of available resources?

As you undertake cost management  for your project, you may need to move between working on your project budget and other pieces of the project plan, like resource calendars and risk registers.

All of these documents impact each other, so you’ll need to keep an eye on all your project information to make your budget as accurate as possible.

2. Estimate your project budget

With your list of potential project costs in hand, it’s time to start estimating the cost of your entire project.

You can approach a budget estimate in 2 ways: top-down or bottom-up.

Top-down budgeting sets a total sum for the project budget and breaks it down into tasks and activities. Bottom-up budgeting estimates costs for each project task and adds them to find the total project budget.

Next, you’ll choose an estimating technique for each task. You can use the same technique for each task in your project, or you can use different methods based on the type of tasks you’re budgeting for.

If you’re using a project management tool  like this one built on monday.com, you can create a budget column to record your cost estimate for each task or activity. You can also add formulas and automations to track your total budget across milestones, categories, and/or boards.

Here are 3 common budget estimating techniques you can use for the activities on your task list:

• Analogous estimating:  use a similar project to estimate costs. You can adjust this past project budget to account for variables or differences in the new project. This approach works best if you routinely do lots of similar projects, like technology installations or acquisitions.
• Parametric estimating:  like the analogous estimating technique, parametric estimating uses data from past or similar projects. But instead of matching estimates for types of tasks, the parametric technique uses statistical methods and algorithms to account for variables and produce an accurate, data-driven project budget estimate.
• 3-point estimating: this bottom-up estimating approach takes a weighted average of your best, worst, and most likely budgets for each task to produce the estimate.

Be sure to use the most up-to-date data you can find on costs in any category. Take other variables into account, too, like market conditions or potential business changes.

Once each associated task has a cost estimate, you can add up your total budget to present to stakeholders and your project team.

3. Get your project budget finalized

Once you have a clear project budget, you’ll need to finalize it with key people involved in the projects.

You may need to get official approval for your budget from people up your chain of command, but it’s just as important to get your stakeholders and budget managers on board.

This way, you can get feedback on specific parts of the budget to help your project run as efficiently as possible.

You’ll also gain full visibility into project costs and changes. If you’re managing your project budget on monday.com, you can even build high-level dashboards that provide accurate budget tracking.

4. Create a project budget tracker

No matter how you’re managing your project schedule and other elements, it’s smart to add a budget tracker to your project management system.

With a project tracker like this one, you can build a complete task list organized into milestones. Then, you can add columns to track the estimated cost and actual cost, as well as other important data.

By connecting relevant data sources with monday.com integrations , you can create a real-time view of your project budget.

If you have a large project team, you can also set controls on your budget tracker so that only approved users can view or change the budget. This way, you’ll maintain control over the budget to ensure accuracy.

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5. Monitor your project budget

It’s critical to monitor your project budget regularly.

By measuring actual costs against estimated costs, you can anticipate problems like scope creep or overspend early on. That gives you enough time to change course without disrupting project progress.

Despite the importance of regular budget tracking, 47%  of project managers can’t see their KPIs in real-time. On top of that, 50% of project managers spend more than a day manually aggregating data to get the information they need.

When you build your project budget tracker on monday.com, you can create a high-level dashboard to measure the actual versus estimated cost.

Here are a few other ways you can use monday.com to track your project budget:

• Add formulas to project boards to calculate your budget deviations.
• Set up automatic notifications in the event of overspend or other problems.
• Create custom permissions for modifying the budget to further control spend.

6. Create a budget change process

Once a project budget is finalized, your goal as project manager is to stick as closely to that budget as possible.

Most of the time, you won’t be able to make changes to the budget unless the project scope or project schedule changes due to business needs.

When those changes arise, however, you’ll need to make sure that you address every part of the project that’s impacted by this change.

By creating interconnected boards and adding data sources on monday.com, you’ll be able to make changes across the project easily, keeping everyone on the same page at all times.

You can also define the change process your team will follow when they need to make changes. For instance, you might create a change request form, develop a checklist for updating the budget, and set up notifications for all stakeholders or budget managers.

7. Review and preserve your project budget report

Although you’ll be monitoring your budget throughout the duration of the project, it’s still worthwhile to conduct a budget review once the project wraps.

Just 48%  of organizations conduct end-of-project reviews, meaning most teams leave lots of insights on the table — insights that could benefit future project budgets.

During a project budget review, debrief on what went well and what didn’t with your budget. Make sure your final actual budget is accurately reflected in your budget report so you can use it for future project budget estimates.

Keep your project budget on track with monday.com

Creating and managing a project budget helps you track and control your spending throughout the duration of a project.

You’ll have full transparency into your budget and an easy way to see when you’re at risk of overspending or other budget problems.

By keeping an eye on your project’s spend, you can help it stay profitable for your business or team. Use this guide and a monday.com project budget management template  to start creating your next budget.

The post How to manage your project budget: a step-by-step guide appeared first on monday.com Blog .

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12. Budget Planning

Adrienne Watt; Project Management Open Resources; TAP-a-PM; and David Wiley, et al.

Click play on the following audio player to listen along as you read this section.

Every project boils down to money. If you had a bigger budget, you could probably get more people to do your project more quickly and deliver more. That’s why no project plan is complete until you come up with a budget. But no matter whether your project is big or small, and no matter how many resources and activities are in it, the process for figuring out the bottom line is always the same.

It is important to come up with detailed estimates for all the project costs. Once this is compiled, you add up the cost estimates into a budget plan. It is now possible to track the project according to that budget while the work is ongoing.

Often, when you come into a project, there is already an expectation of how much it will cost or how much time it will take. When you make an estimate early in the project without knowing much about it, that estimate is called a rough order-of-magnitude estimate (or a ballpark estimate). This estimate will become more refined as time goes on and you learn more about the project. Here are some tools and techniques for estimating cost:

• Determination of resource cost rates : People who will be working on the project all work at a specific rate. Any materials you use to build the project (e.g., wood or wiring) will be charged at a rate too. Determining resource costs means figuring out what the rate for labour and materials will be.
• Vendor bid analysis: Sometimes you will need to work with an external contractor to get your project done. You might even have more than one contractor bid on the job. This tool is about evaluating those bids and choosing the one you will accept.
• Reserve analysis : You need to set aside some money for cost overruns. If you know that your project has a risk of something expensive happening, it is better to have some cash available to deal with it. Reserve analysis means putting some cash away in case of overruns.
• Cost of quality : You will need to figure the cost of all your quality-related activities into the overall budget. Since it’s cheaper to find bugs earlier in the project than later, there are always quality costs associated with everything your project produces. Cost of quality is just a way of tracking the cost of those activities. It is the amount of money it takes to do the project right.

Once you apply all the tools in this process, you will arrive at an estimate for how much your project will cost. It’s important to keep all of your supporting estimate information. That way, you know the assumptions made when you were coming up with the numbers. Now you are ready to build your budget plan.

Estimating Costs to Compare and Select Projects

During the conceptual phase when project selection occurs, economic factors are an important consideration in choosing between competing projects. To compare the simple paybacks or internal rates of return between projects, an estimate of the cost of each project is made. The estimates must be accurate enough so that the comparisons are meaningful, but the amount of time and resources used to make the estimates should be appropriate to the size and complexity of the project. The methods used to estimate the cost of the project during the selection phase are generally faster and consume fewer resources than those used to create detailed estimates in later phases. They rely more on the expert judgment of experienced managers who can make accurate estimates with less detailed information. Estimates in the earliest stages of project selection are usually based on information from previous projects that can be adjusted— scaled —to match the size and complexity of the current project or developed using standardized formulas.

Analogous Estimate

An estimate that is based on other project estimates is an analogous estimate . If a similar project cost a certain amount, then it is reasonable to assume that the current project will cost about the same. Few projects are exactly the same size and complexity, so the estimate must be adjusted upward or downward to account for the differences. The selection of projects that are similar and the amount of adjustment needed is up to the judgment of the person who makes the estimate. Normally, this judgment is based on many years of experience estimating projects, including incorrect estimates that were learning experiences for the expert.

Less-experienced managers who are required to make analogous estimates can look through the documentation that is available from previous projects.  If projects were evaluated using the Darnall-Preston Complexity Index (DPCI), the manager can quickly identify projects that have profiles similar to the project under consideration, even if those projects were managed by other people.

The DPCI assesses project attributes, enabling better-informed decisions in creating the project profile. This index assesses the complexity level of key components of a project and produces a unique project profile. The profile indicates the project complexity level, which provides a benchmark for comparing projects and information about the characteristics of a project that can then be addressed in the project execution plan. It achieves this objective by grouping 11 attributes into four broad categories: internal, external, technological complexity, and environmental.

Comparing the original estimates with the final project costs on several previous projects with the same DPCI ratings gives a less-experienced manager the perspective that it would take many years to acquire by trial and error. It also provides references the manager can use to justify the estimate.

Example: Analogous Estimate for John’s Move

John sold his apartment and purchased another one.  It is now time to plan for the move. John asked a friend for advice about the cost of his move. His friend replied, “I moved from an apartment a little smaller than yours last year and the distance was about the same. I did it with a 14-foot truck. It cost about $575 for the truck rental, pads, hand truck, rope, boxes, and gas.” Because of the similarity of the projects, John’s initial estimate of the cost of the move was less than $700 so he decided that the cost would be affordable and the project could go forward.

Parametric Estimate

If the project consists of activities that are common to many other projects, average costs are available per unit. For example, if you ask a construction company how much it would cost to build a standard office building, the estimator will ask for the size of the building in square feet and the city in which the building will be built. From these two factors—size and location—the company’s estimator can predict the cost of the building. Factors like size and location are parameters —measurable factors that can be used in an equation to calculate a result. The estimator knows the average cost per square foot of a typical office building and adjustments for local labour costs. Other parameters such as quality of finishes are used to further refine the estimate. Estimates that are calculated by multiplying measured parameters by cost-per-unit values are parametric estimates .

Example: Parametric Estimate for John’s Move

To estimate the size of the truck needed for John’s move, the parameter used by a truck rental company is the number of bedrooms (Figure 12.1). The company assumes that the number of bedrooms is the important parameter in determining how big a truck is needed for a move. John has a one-bedroom apartment, so he chooses the 14-foot truck. Once the size is determined, other parameters, such as distance and days, are used to estimate the cost of the truck rental.

Bottom-Up Estimating

The most accurate and time-consuming estimating method is to identify the cost of each item in each activity of the schedule, including labour and materials. If you view the project schedule as a hierarchy where the general descriptions of tasks are at the top and the lower levels become more detailed, finding the price of each item at the lowest level and then summing them to determine the cost of higher levels is called bottom-up estimating .

Example: Bottom-Up Estimate for John’s Move

After evaluating the bids by the moving companies, John decides the savings are worth his time if he can get the packing done with the help of his friends. He decides to prepare a detailed estimate of costs (Table 12.1) for packing materials and use of a rental truck. He looks up the prices for packing materials and truck rental costs on company websites and prepares a detailed list of items, quantities, and costs.

This type of estimate is typically more accurate than an analogous or parametric estimate. In this example, the sum of packing materials and truck expenses is estimated to be $661.25.

The estimate can be rolled up—subtotaled—to display less detail. This process is made easier using computer software. On projects with low complexity, the cost estimates can be done on spreadsheet software. On larger projects, software that manages schedules can also manage costs and display them by activity and category. For example, the subtotal feature could be used in Excel and collapsed to show the subtotals for the two categories of costs (Figure 12.2).

Activity-Based Estimates

An activity can have costs from multiple vendors in addition to internal costs for labour and materials. Detailed estimates from all sources can be reorganized so those costs associated with a particular activity can be grouped by adding the activity code to the detailed estimate (Table 12.2).

The detailed cost estimates can be sorted and then subtotaled by activity to determine the cost for each activity.

Managing the Budget

Projects seldom go according to plan in every detail. It is necessary for the project manager to be able to identify when costs are varying from the budget and manage those variations.

Managing Cash Flow

If the total amount spent on a project is equal to or less than the amount budgeted, the project can still be in trouble if the funding for the project is not available when it is needed. There is a natural tension between the financial people in an organization, who do not want to pay for the use of money that is just sitting in a checking account, and the project manager, who wants to be sure that there is enough money available to pay for project expenses. The financial people prefer to keep the company’s money working in other investments until the last moment before transferring it to the project account. The contractors and vendors have similar concerns, and they want to get paid as soon as possible so they can put the money to work in their own organizations. The project manager would like to have as much cash available as possible to use if activities exceed budget expectations.

Contingency Reserves

Most projects have something unexpected occur that increases costs above the original estimates. If estimates are rarely exceeded, the estimating method should be reviewed because the estimates are too high. It is impossible to predict which activities will cost more than expected, but it is reasonable to assume that some of them will. Estimating the likelihood of such events is part of risk analysis, which is discussed in more detail in a later chapter.

Instead of overestimating each cost, money is budgeted for dealing with unplanned but statistically predictable cost increases. Funds allocated for this purpose are called contingency reserves . Because it is likely that this money will be spent, it is part of the total budget for the project. If this fund is adequate to meet the unplanned expenses, then the project will complete within the budget.

Management Reserves

If something occurs during the project that requires a change in the project scope, money may be needed to deal with the situation before a change in scope can be negotiated with the project sponsor or client. It could be an opportunity as well as a challenge. For example, if a new technology were invented that would greatly enhance your completed project, there would be additional cost and a change to the scope, but it would be worth it. Money can be made available at the manager’s discretion to meet needs that would change the scope of the project. These funds are called management reserves . Unlike contingency reserves, they are not likely to be spent and are not part of the project’s budget baseline, but they can be included in the total project budget.

Evaluating the Budget During the Project

A project manager must regularly compare the amount of money spent with the budgeted amount and report this information to managers and stakeholders. It is necessary to establish an understanding of how this progress will be measured and reported.

Example: Reporting Budget Progress on John’s Move

In the John’s move example, he estimated that the move would cost about $1,500 and take about 16 days. Eight days into the project, John has spent $300. John tells his friends that the project is going well because he is halfway through the project but has only spent a fifth of his budget. John’s friend Carlita points out that his report is not sufficient because he did not compare the amount spent to the budgeted amount for the activities that should be done by the eighth day.

As John’s friend pointed out, a budget report must compare the amount spent with the amount that is expected to be spent by that point in the project. Basic measures such as percentage of activities completed, percentage of measurement units completed, and percentage of budget spent are adequate for less complex projects, but more sophisticated techniques are used for projects with higher complexity.

Earned Value Analysis

A method that is widely used for medium- and high-complexity projects is the earned value management (EVM) method. EVM is a method of periodically comparing the budgeted costs with the actual costs during the project. It combines the scheduled activities with detailed cost estimates of each activity. It allows for partial completion of an activity if some of the detailed costs associated with the activity have been paid but others have not.

The budgeted cost of work scheduled (BCWS) comprises the detailed cost estimates for each activity in the project. The amount of work that should have been done by a particular date is the planned value (PV) . These terms are used interchangeably by some sources, but the planned value term is used in formulas to refer to the sum of the budgeted cost of work up to a particular point in the project, so we will make that distinction in the definitions in this text for clarity.

Example: Planned Value on Day Six of John’s Move

On day six of the project, John should have taken his friends to lunch and purchased the packing materials. The portion of the BCWS that should have been done by that date (the planned value) is shown in Table 12.3. This is the planned value for day six of the project.

Total: $261.65

The budgeted cost of work performed (BCWP) is the budgeted cost of work scheduled that has been done. If you sum the BCWP values up to that point in the project schedule, you have the earned value (EV) . The amount spent on an item is often more or less than the estimated amount that was budgeted for that item. The actual cost (AC) is the sum of the amounts actually spent on the items.

Example: Comparing PV, EV, and AC in John’s Move on Day Six

Dion and Carlita were both trying to lose weight and just wanted a nice salad. Consequently, the lunch cost less than expected. John makes a stop at a store that sells moving supplies at discount rates. They do not have all the items he needs, but the prices are lower than those quoted by the moving company. They have a very good price on lifting straps so he decides to buy an extra pair. He returns with some of the items on his list, but this phase of the job is not complete by the end of day six. John bought half of the small boxes, all of five other items, twice as many lifting straps, and none of four other items. John is only six days into his project, and his costs and performance are starting to vary from the plan. Earned value analysis gives us a method for reporting that progress (Table 12.4).

The original schedule called for spending $261.65 (PV) by day six. The amount of work done was worth $162.10 (EV) according to the estimates, but the actual cost was only $154.50 (AC).

Schedule Variance

The project manager must know if the project is on schedule and within the budget. The difference between planned and actual progress is the variance . The schedule variance (SV) is the difference between the earned value (EV) and the planned value (PV). Expressed as a formula, SV = EV − PV. If less value has been earned than was planned, the schedule variance is negative, which means the project is behind schedule.

Example: Schedule Variance on John’s Move

Planning for John’s move calls for spending $261.65 by day six, which is the planned value (PV). The difference between the planned value and the earned value is the scheduled variance (SV). The formula is SV = EV − PV. In this example, SV = $162.10 − $261.65 = ($99.55) A negative SV indicates the project is behind schedule.

The difference between the earned value (EV) and the actual cost (AC) is the cost variance (CV) . Expressed as a formula, CV = EV −AC. A positive CV indicates the project is under budget.

Example: Cost Variance on John’s Move

The difference between the earned value of $162.10 and the actual cost of $154.50 is the cost variance (CV). The formula is CV = EV − AC. In this example, CV = $162.10 − $154.50 = $7.60.

Variance Indexes for Schedule and Cost

The schedule variance and the cost variance provide the amount by which the spending is behind (or ahead of) schedule and the amount by which a project is exceeding (or not fully using) its budget. They do not give an idea of how these amounts compare with the total budget.

The ratio of earned value to planned value gives an indication of how much of the project is completed. This ratio is the schedule performance index (SPI) . The formula is SPI = EV ÷ PV. In the John’s move example, the SPI equals 0.62 (SPI = $162.10 ÷ $261.65 = 0.62) An SPI value less than 1 indicates the project is behind schedule.

The ratio of the earned value to the actual cost is the cost performance index (CPI) . The formula is CPI = EV ÷ AC.

Example: Cost Performance Index of John’s Move

In the John’s move example, CPI = $162.10 ÷ $154.50 = 1.05. A value greater than 1 indicates that the project is under budget.

The cost variance of positive $7.60 and the CPI value of 1.05 tell John that he is getting more value for his money than planned for the tasks scheduled by day six. The schedule variance (SV) of negative $99.55 and the schedule performance index (SPI) of 0.62 tell him that he is behind schedule in adding value to the project (Figure 12.3).

During the project, the manager can evaluate the schedule using the schedule variance (SV) and the schedule performance index (SPI), and the budget using the cost variance (CV) and the cost performance index (CPI).

Estimated Cost to Complete the Project

Part way through the project, the manager evaluates the accuracy of the cost estimates for the activities that have taken place and uses that experience to predict how much money it will take to complete the unfinished ativities— the estimate to complete (ETC) .

To calculate the ETC, the manager must decide if the cost variance observed in the estimates to that point are representative of the future. For example, if unusually bad weather causes increased cost during the first part of the project, it is not likely to have the same effect on the rest of the project. If the manager decides that the cost variance up to this point in the project is atypical—not typical—then the estimate to complete is the difference between the original budget for the entire project—the budget at completion (BAC) —and the earned value (EV) up to that point. Expressed as a formula, ETC = BAC − EV.

Example: Estimate to Complete John’s Move

For his move, John was able to buy most of the items at a discount house that did not have a complete inventory, and he chose to buy an extra pair of lift straps. He knows that the planned values for packing materials were obtained from the price list at the moving company where he will have to buy the rest of the items, so those two factors are not likely to be typical of the remaining purchases. The reduced cost of lunch is unrelated to the future costs of packing materials, truck rentals, and hotel fees. John decides that the factors that caused the variances are atypical. He calculates that the estimate to complete (ETC) is the budget at completion ($1,534) minus the earned value at that point ($162.10), which equals $1,371.90. Expressed as a formula, ETC = $1,534 − $162.10 = $1,371.90.

If the manager decides that the cost variance is caused by factors that will affect the remaining activities, such as higher labour and material costs, then the estimate to complete (ETC) needs to be adjusted by dividing it by the cost performance index (CPI). For example, if labour costs on the first part of a project are estimated at $80,000 (EV) and they actually cost $85,000 (AC), the cost performance (CPI) will be 0.94. (Recall that the CPI = EV ÷ AC.)

To calculate the estimate to complete (ETC), assuming the cost variance on known activities is typical of future cost, the formula is ETC = (BAC − EV) ÷ CPI. If the budget at completion (BAC) of the project is $800,000, the estimate to complete is ($800,000 − $80,000) ÷ 0.94 = $766,000.

Estimate Final Project Cost

If the costs of the activities up to the present vary from the original estimates, this will affect the total estimate of the project cost. The new estimate of the project cost is the estimate at completion (EAC). To calculate the EAC, the estimate to complete (ETC) is added to the actual cost (AC) of the activities already performed. Expressed as a formula, EAC = AC + ETC.

Example: Estimate at Completion for John’s Move

The revised estimate at completion (EAC) for John’s move at this point in the process is EAC = $154.50 + $1,371.90 = $1,526.40.

To summarize (Table 12.5):

• Extra money is allocated in a contingency fund to deal with activities where costs exceed estimates. Funds are allocated in a management reserve in case a significant opportunity or challenge occurs that requires change of scope but funds are needed immediately before a scope change can typically be negotiated.
• Schedule variance is the difference between the part of the budget that has been spent so far (EV) versus the part that was planned to be spent by now (PV). Similarly, the cost variance is the difference between the EV and the actual cost (AC).
• The schedule performance index (SPI) is the ratio of the earned value and the planned value. The cost performance index (CPI) is the ratio of the earned value (EV) to the actual cost (AC).
• The formula used to calculate the amount of money needed to complete the project (ETC) depends on whether or not the cost variance to this point is expected to continue (typical) or not (atypical). If the cost variance is atypical, the ETC is simply the original total budget (BAC) minus the earned value (EV). If they are typical of future cost variances, the ETC is adjusted by dividing the difference between BAC and EV by the CPI.
• The final budget is the actual cost (AC) to this point plus the estimate to complete (ETC).

Establishing a Budget

Once you have broken your project down into activities, you will be able to calculate your overall project costs by estimating and totaling the individual activity costs.

This process of subtotaling costs by category or activity is called cost aggregation .

Budget Timeline

Costs are associated with activities, and since each activity has a start date and a duration period, it is possible to calculate how much money will be spent by any particular date during the project. The money needed to pay for a project is usually transferred to the project account shortly before it is needed. These transfers must be timed so that the money is there to pay for each activity without causing a delay in the start of the activity. If the money is transferred too far in advance, the organization will lose the opportunity to use the money somewhere else, or they will have to pay unnecessary interest charges if the money is borrowed. A schedule of money transfers is created that should match the need to pay for the activities. The process of matching the schedule of transfers with the schedule of activity payments is called reconciliation . Refer to Figure 12.4, which shows the costs of 10 major activities in a project. Funds are transferred into the project account four times. Notice that during most of the project, there were more funds available than were spent except at activity 6 when all the available funds were spent.

In the project budget profile shown in Figure 12.4, there is no margin for error if the total of the first six activities exceeds the amount of funding at that point in the project.

Contractual agreements with vendors often require partial payment of their costs during the project. Those contracts can be managed more conveniently if the unit of measure for partial completion is the same as that used for cost budgeting. For example, if a graphic designer is putting together several pieces of artwork for a textbook, their contract may call for partial payment after 25% of their total number of drawings is complete.

Text Attributions

This chapter adapted and remixed by Adrienne Watts from the following sources:

• Introductory text was adapted from “Budget Planning” in Project Management for Skills for All Careers by Project Management Open Resources and TAP-a-PM. Licensed under a CC BY 3.0 licence .
• Text under “Estimating Costs” and “Managing the Budget”  was adapted from “Costs and Procurement” in Project Management for Instructional Designers by Amado, M., Ashton, K., Ashton, S., Bostwick, J., Clements, G., Drysdale, J., Francis, J., Harrison, B., Nan, V., Nisse, A., Randall, D., Rino, J., Robinson, J., Snyder, A., Wiley, D., & Anonymous.  Licensed under a CC BY-NC-SA (Attribution-NonCommercial-ShareAlike) licence .
• Text under “Budget Timeline” was adapted from “ Estimating Costs ” in Project Management From Simple to Complex by author whose name has been removed at the request of the original publisher. Licensed under CC BY-NC-SA 4.0 licence .

Media Attributions

• Parametric Cost Estimate is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license
• Sum of Detailed Costs by Type © Wiley, et al is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license
• Schedule Variance Cost Variance © Wiley et al is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license
• Fund Transfers and Expenditures © Wiley et al is licensed under a CC BY-NC-SA (Attribution NonCommercial ShareAlike) license

12. Budget Planning Copyright © 2014 by Adrienne Watt; Project Management Open Resources; TAP-a-PM; and David Wiley, et al. is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License , except where otherwise noted.

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Project cost management: Definition, steps, and benefits

Cost management is the process of planning, budgeting, and reporting project spend in order to keep teams on budget and overall costs reasonable. In this article, we'll go over the four functions of cost management and explain exactly how to use them to improve your project's bottom line.

What is cost management?

Cost management is the process of estimating, budgeting, and controlling project costs. The cost management process begins during the planning phase and continues throughout the duration of the project as managers continuously review, monitor, and adjust expenditures to ensure the project doesn't go over the approved budget.

Why is cost management important?

Have you ever wondered what happens when a project goes significantly over budget? The consequences can be severe—from strained relationships with clients to financial losses. Let's consider an example:

A small software development team was tasked with creating a custom application for a client. Midway through, they realized the project was quickly exceeding the initial budget. They faced a common dilemma: continue as planned and absorb the extra costs or re-evaluate their approach.

By implementing rigorous cost management strategies, the team was able to identify areas where expenses were ballooning. They streamlined their project management processes, prioritized essential features, and renegotiated terms with subcontractors. This approach not only brought the project back within budget but also improved their working relationship with the client, who appreciated their transparency and commitment to delivering value.

This scenario highlights how effective cost management can transform a potentially disastrous situation into a success story.

How to create a cost management plan

Cost management is a continuous, fluid process. However, there are four main elements or functions that can be found in any cost management plan:

Cost estimating

Cost budgeting, cost control.

Because new expenses can appear and project scope can be adjusted, cost managers need to be prepared to perform all four functions at any time throughout the project life cycle. Your workflow will vary according to the project’s needs.

Here, we'll break down each of the four elements in greater detail and explain what is required from the cost manager at each stage.

The very first step in any cost management process is resource planning, which is when the cost manager reviews the project's scope and specs to figure out what resources the project will require.

A resource is anything that helps you complete a project—including tools, money, time, equipment, and even team members. To create the most accurate resource plan possible, consult directly with team leads and stakeholders about what resources they will need during the project. People with hands-on experience in each project department will have a better understanding of what resources will be required. 

For this step, you'll need:

Clearly defined project objectives

A high-level project roadmap or a work breakdown structure (WBS) , depending on the complexity of the project

A tentative resource management plan

A project scope statement

Once you have a list of necessary resources, the next step is to estimate what it will cost to procure them. The key to this step is to gather as much pricing information as possible so that you can make informed cost estimates.

For tangible resources like tools, supplies, and equipment, get real price quotes from sellers to inform your cost estimate. For labor costs, get multiple price quotes from potential contractors to help give you a realistic idea of what the work you require will actually cost. Keep in mind that some time may pass between when you make your estimate and when these items will be purchased, so you should build in some room in case prices rise. 

In addition to building in a cushion for each individual cost, you'll also need to add a buffer of 5–10% to your cost total to account for unexpected expenses. If this is your first time working with this project team, find out if the previous cost manager generated budget reports at the end of past projects. 

You can take a look at how much previous projects' final costs deviated from their initial estimates and use this cost data as a benchmark to estimate how much of a margin you need to build into your estimation report.

In the estimation stage , you'll need:

Project schedule or a PERT chart , depending on the complexity of the project

A list of your project deliverables

Clearly defined success metrics

Now that you have general estimates for your project needs and resource requirements, you can begin to work on your project budget . Your project budget is a detailed plan of how much you plan to spend during the project, for what, and by when. 

Depending on the complexity of your project, the “when” may significantly influence your cost management strategy. For multi-year projects, you may want to specify cost allocations so that no more than 30% of your budget should be spent in the first year, etc. This can prevent cost overruns later down the road.

In this stage, you'll need:

A project budget document 

A project stakeholder analysis

The bulk of the cost management process is made up of cost control . This is the process of recording and accounting costs as the project progresses, making adjustments, and alerting stakeholders to problems when they occur. The goal of the cost control step is to compare actual project costs with original budgets and estimates and take steps to make sure the project stays as close to plan as possible.

The frequency with which you review this will depend on your project. Sometimes you’ll want to review costs in real time. In other cases, you may check in monthly or even quarterly. Share cost updates as necessary through project status reports so the entire project team is on the same page.

Keep in mind that any changes to the project scope will impact the project budget and costs, so keep a close eye on scope creep. If the project cost deviates too much from what you budgeted, let your stakeholders know so you can proactively come up with an action plan.

Project management tool

Universal reporting tool

Post-project cost accounting

Once the project is over, it’s time to calculate cost variance and evaluate how far your project deviated from your original budget and estimates. What were the project’s total costs? How did your actual costs compare to your estimated costs? 

A successful project ends close to (but under) the forecasted project budget. If you spent too much money, you either underestimated your project budget or had too many unforeseen expenses. If this happens, hold a project post-mortem meeting to evaluate why that happened and prevent it from happening in the future.

On the flip side, spending too little of your budget is also not ideal. You estimated these costs for a reason, and if you came in significantly under budget, your cost-budgeting process was inaccurate. Log this information as historical data and keep it in mind for future projects, so you can increase your accuracy during the cost estimation phase.

How to calculate project costs

To ensure that your project stays profitable and within budget, it is essential to have a solid understanding of how to calculate project costs. 

Project managers have a variety of cost management methods to choose from, and picking the best one depends on the specific needs and scope of your project. Consider factors like project complexity, the predictability of tasks, client expectations, and the level of flexibility you'll need to achieve your cost-performance goals.

Calculating project costs on an hourly basis involves paying for the amount of work done, measured in hours. This method is particularly effective for projects where the scope is flexible or uncertain because it allows for adaptability as the project progresses. 

For example, consider a software development project. The development team's cost is calculated based on the number of hours they spend on the project. If the team works 100 hours a month at a rate of $100 per hour, the project costing for that month would be $10,000. This method provides flexibility and can accommodate changes in the project's scope effectively.

A flat rate, or fixed price, approach involves agreeing on a total project cost upfront. This method is ideal for projects with a well-defined scope and deliverables. This gives both parties a clear understanding of the total cost.

Imagine a marketing campaign. The agency and the client agree on a fixed price of $20,000 for the entire campaign. This price covers all aspects of the project, from planning to execution. The advantage here is predictability in budgeting, as the client knows exactly how much the project will cost, irrespective of the time and resources utilized.

The cost-plus method involves charging the actual costs of the project plus a markup or additional fee. This approach is often used in long-term projects where the costs cannot be accurately estimated at the start. It ensures that all project costs are covered and includes a profit margin.

For instance, in a construction project, the contractor charges for the actual costs incurred (like materials and labor) plus a fixed percentage as profit. If the material and labor costs amount to $50,000 and the agreed markup is 20%, the total charge to the client would be $60,000. This cost management method aligns the interests of the client and the contractor, as both parties aim for optimal cost performance.

Value-based pricing

Value-based pricing focuses on the value or benefit the client receives rather than the cost of the project itself. This estimation method is ideal for projects where the outcome has a high perceived value, regardless of the actual cost of delivery.

Consider a scenario where a consulting firm is helping a client increase their annual revenue. If the consultant's strategies result in a $1 million revenue increase, the consultant may charge a fee based on a percentage of the revenue increase, say 10%, which would be $100,000. Value-based pricing ensures that the pricing reflects the value delivered.

Effective project cost management methods

One of the most persistent challenges faced by teams across various industries is controlling and preventing budget overruns. These overruns not only strain financial resources but can also lead to compromised project quality, delayed timelines, and even project failure. 

Effective cost management is the key to tackling this challenge because it makes certain that projects are delivered within their allocated budgets while maintaining high standards of quality and efficiency.

Choosing the best cost-management method is key to addressing these financial challenges head-on. For further cost optimization, teams can leverage automation, management software, and dashboards that offer real-time cost analysis, cash flow, and future cost visualization. This will ultimately contribute to the success of your project.

Top-down estimating

Top-down estimating is a method where the overall project cost is estimated first, and then individual costs are deduced from this total. This approach is beneficial in the early stages of project planning, when detailed information is not yet available. It gives a quick and rough idea of how much the project will cost.

For example, in a new software development project, the project manager might estimate the total project cost at $200,000 based on previous similar projects. This total cost is then broken down into smaller segments like design, coding, testing, and deployment, each allocated a portion of the total budget. This method is effective for providing a preliminary cost framework and guiding early project decision-making.

Bottom-up estimating

Bottom-up estimating is the reverse of the top-down approach. It involves estimating individual tasks or components of the project first and then adding them up to get the total project cost. This estimation method is more accurate and reliable, especially for projects with a well-defined scope, as it considers detailed cost information.

Consider a construction project where each part of the project, such as foundation laying, framing, plumbing, and electrical work, is estimated individually based on detailed analysis. After estimating all these components, the costs are summed up to determine the overall project budget. Bottom-up estimating is ideal for teams that need precise control over each aspect of the project's costs.

Earned value management

Earned value management (EVM) is a sophisticated approach to cost management that combines measurements of project performance in terms of scope, schedule, and cost. EVM provides a comprehensive view of the project's progress and its alignment with the original project planning.

For instance, in a large infrastructure project, EVM would be used to track the following: 

Budgeted cost of work scheduled (BCWS)

Actual cost of work performed (ACWP)

Budgeted cost of work performed (BCWP) 

By comparing these figures, project managers can gauge the project's cost performance and take corrective action if necessary.

Three-point estimating

Three-point estimating is used to determine a more realistic estimate by considering three scenarios: 

Most optimistic (best-case) 

Most pessimistic (worst-case) 

Most likely 

This cost management method provides a range of possible outcomes, which can increase the predictability and cost performance of a project.

Take, for example, a new product development project. The project manager might estimate that the design phase could take 30 days (optimistic), 45 days (most likely), or 60 days (pessimistic). Using these three points, they calculate an average or weighted average duration, which helps in setting realistic timelines and budgets.

FAQ about cost management

What is the first step in project cost management.

The first step in project cost management is to define the baseline for your project's budget. This involves identifying all potential costs and inputs related to the project, including labor, materials, equipment, and any other expenses. Creating a baseline is essential because it provides the framework for monitoring and controlling expenses during the lifecycle of a project.

What are the 5 functions of cost management?

The five key functions of cost management are:

Cost estimation: Determining the total cost required for completing the project.

Cost budgeting: Allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

Cost control: Monitoring project expenses and implementing measures to keep costs within the approved budget.

Cash flow management : Ensuring there is adequate cash flow to meet project needs, which is critical for maintaining project momentum.

Procurement management: Managing the procurement of goods and services, ensuring that everything is obtained at the best possible cost and meets project needs.

What is cost management in project management?

Cost management in project management is the process of planning, estimating, budgeting, and controlling costs with the aim of completing the project within the approved budget. It involves a continuous process of measuring and monitoring project activities and expenses and implementing necessary adjustments to ensure that the project's financial resources are used effectively. 

Improve your project performance with cost management

Cost management has a lot of moving parts. But as long as your team has visibility into project costs, you can prevent cost overruns and ensure you’re finishing your project under budget every time.

To keep track of all of your project’s information, use a work management platform like Asana. From project costing and kickoff to post-mortem, Asana helps you stay in sync with your project team members and stakeholders during the entire project process.

Related resources

How to use a feasibility study in project management

How to track utilization rate and drive team profitability

How to accomplish big things with long-term goals

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Project Budget Management - How to Make a Project Budget in 7 Easy Steps

Effective project management is a cornerstone of success for any organization. It involves meticulous planning, precise execution, and a keen eye on the financial aspects of the project. 

In this era of ever-evolving business dynamics, Project Budget Management emerges as a critical discipline that can make or break the outcome of a project.

In this comprehensive guide, we delve deep into the world of Project Budget Management, exploring its significance, methodologies, and best practices.

What Is a Project Budget ?

Imagine setting off on a cross-country road trip without a map or GPS. You might eventually reach your destination, but it would be a turbulent and uncertain journey. The same holds true for projects without a well-defined budget. 

A project budget is your trusted navigation system, ensuring you stay on course and reach your project objectives efficiently.

A project budget is the financial heart of your project, guiding it towards successful completion. It encompasses various cost categories, ensuring that every aspect of your project is adequately funded.

Also Read - The Essential Guide to Project Expense Tracking

What Does Project Budget Include?

Project budgets are comprehensive documents, encompassing a myriad of costs. Here's a breakdown of the typical components you'll find:

1. Labour Costs: This category covers the financial outlay for salaries, wages, benefits, and payroll taxes, essentially the driving force behind your project.

2. Material Costs: Think of this as the toolkit needed to construct your project. It includes equipment, software licenses, and essential supplies that keep the wheels turning.

3. Transportation: Whether it's getting team members to project sites or delivering equipment, transportation costs are a key consideration. After all, you can't build a bridge without getting to the construction site!

4. Research and Consultants: Some projects require external expertise to navigate complex challenges. Budgeting for experts or specialized teams, such as legal or development consultants, is a pivotal aspect of project budget management.

5. Training: Ensuring your team possesses the requisite skills and knowledge is paramount. Budgeting for courses, conferences, or facilitators to enhance your workforce's capabilities is an integral part of project budgeting.

In essence, your project budget serves as your financial blueprint, directing you on where to allocate resources effectively. 

It's not a static document; rather, it evolves throughout the project's lifecycle, adapting to changing circumstances and unforeseen hurdles.

What is Project Budget Management ?

Project budget management is the financial compass that guides business projects. 

It's not just about assigning a lump sum, like 20,000, to a project; it's about understanding the intricate details of each cost element and effectively tracking your budget. This process involves:

1. Deriving the Overall Number: How you calculate the total budget figure matters. It's about meticulous calculation that considers every financial aspect of your project.

2. Spreading Costs Across Milestones: Projects have phases, each with its own financial demands. Allocate your budget across these milestones for smooth progress.

3. Tracking Project Costs: Keep a close eye on expenses to ensure alignment with the budget. Utilize project budget tracking software or other tools for accuracy.

4. Periodic Reporting: Regular cost reporting keeps stakeholders informed and ensures transparency and accountability.

5. Managing Budget Scenarios: Projects can veer off course. Plan for scenarios where projects go over or under budget.

6. Learning from the Past: Use insights from past projects to refine future budgeting accuracy.

7. Portfolio Budget Management: Manage multiple budgets to ensure cohesion and strategic alignment.

Also Read - Top 6 Professional Services Project Tracking Software Solutions to Boost Your Efficiency

The Importance Of Budget In Project Management

Project budgets aren't just financial accounts; they play a pivotal role in determining project success. Budget management holds significance:

1. Strategic Planning: Budgets shape project priorities, determining financial feasibility and alignment with strategic goals.

2. Funds Allocation: Organizations allocate funds for maximum impact. Budget management helps decide which projects promise the best outcomes.

3. Learning from Experience: Effective budget management is iterative. Insights from past projects inform future decisions.

How to Make a Project Budget

Creating a project budget is akin to architecting the financial blueprint for your project's success. It's a strategic process that involves the meticulous allocation of funds to every aspect of your project. 

Let's delve into the essential steps required to craft and manage a project budget effectively.

1. Use Historical Data

Your project is likely not the first of its kind. To kickstart your budget, look back at similar projects and their financial histories. 

Leveraging historical data provides valuable insights and a solid foundation for your budget.

2. Reference Lessons Learned

Going beyond historical data, dive into the lessons learned from past projects. Learn from their successes and pitfalls to create more accurate estimates. 

Discover how they navigated changes and kept their budgets under control.

3. Leverage Your Experts

Tap into the wisdom of experts, mentors, and experienced individuals in your field. 

Seek guidance from those who have created rough order of magnitude estimates and budgets. Their insights can help you avoid pitfalls and stay on track.

4. Confirm Accuracy

Once your budget is in place, your work isn't done. Scrutinize your figures to ensure accuracy. Collaborate with experts and project team members to validate and fine-tune your budget.

5. Baseline and Re-Baseline the Budget

Your project budget serves as the baseline against which you'll measure project progress. 

However, as changes occur during your project, you'll need to re-baseline your budget. Seek approval from the change control board whenever changes are required.

6. Update in Real Time

Real-time updates are essential to staying on top of changes and challenges. Utilize project management software that provides immediate updates and keeps your team in sync with budget adjustments.

7. Get Back on Track

Projects often encounter unforeseen twists. What sets successful projects apart is their ability to get back on track swiftly. 

Real-time project management software, such as ProjectManager, empowers you with the insights needed to recalibrate your project's course promptly.

Also Read - 6 Best Client Project Management Software: Streamlining Your Business Relationships

Use ClientVenue as Your Project Management Software

ClientVenue isn't just a versatile client onboarding and management tool; it also excels as a robust Project Management software tailored for advertising agencies. 

Here's how you can harness the power of ClientVenue for seamless project management:

1. Effortless Client Onboarding: 

Streamline client onboarding with automated features, leaving a lasting first impression. Our ad agency project management system ensures a world-class onboarding experience from the initial contact, delighting clients right from the start.

2. Real-time Project Management: 

Take charge of your projects from inception to completion using highly customizable views that simplify project planning. 

Collaborate effortlessly with both internal and external teams using templates and manageable workflows, enabling you to focus on what truly matters for your agency.

3. Centralized Client Storage: 

Store all client-related media and assets conveniently in a dedicated client storage space within ClientVenue . Access and manage essential client materials effortlessly, enhancing organization and accessibility.

4. Integrated Payment Handling: 

Bid farewell to payment-related concerns by seamlessly handling payments within the ClientVenue workspace. Enjoy the benefits of an integrated experience, allowing you to create a self-serve checkout model. 

Whether it's recurring billing or one-time billing, our native integrations with top payment platforms and providers have got you covered.

5. Professional Invoicing: 

Create professional-looking invoices with your branding, making a positive impression on your clients. The integrated invoicing experience ensures efficient management of invoicing tasks, whether it's recurring or one-time billing.

6. White Label Customization: 

Tailor ClientVenue to match your brand's design language. Activate whitelabel mode to make the portal appear as your product on your website. 

Impress clients with a native experience that reflects your brand's aesthetics and easily adjust the platform's look and feel to align with your brand's identity.

7. Comprehensive Reporting: 

Gain valuable insights with dedicated report sections, providing organization-level reports for projects, teams, and employees. 

Monitor every aspect of your projects, from milestones to budgeting and time tracking. Generate professional client-facing reports for transparent project reviews.

8. Efficient Timesheet and Resource Management: 

Simplify timesheet and resource management right from your agency dashboard. Assign permission levels to teammates on both your agency and client sides, ensuring seamless collaboration.

As we conclude our exploration of Project Budget Management, it becomes evident that effective financial oversight is not merely a component of successful project management; it is the foundation upon which projects thrive. 

From meticulous planning to resource allocation and cost tracking, every facet of Project Budget Management plays a pivotal role in the project's journey from conception to completion.

With ClientVenue, you're not just managing clients; you're efficiently handling projects, resources, and payments all in one place. 

Harness the power of ClientVenue for your project management needs, and elevate your agency's success to new heights. 

Experience streamlined operations, enhanced client relationships, and increased productivity with ClientVenue as your Project Management software of choice.

Also Read - Top 6 Project Workflow Management Tools: Streamlining Your Project Success

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Table of Contents

What is project budgeting, importance of accurate project budget management, how do you create budget planning in project management, best strategies for effective budgeting, top project budgeting tools and technologies, benefits of project budgeting, project budgets involve establishing a base for tracking and controlling performance during progress. , frequently asked questions, what is project budgeting tools, techniques, and benefits.

A successful project is the dream of every project management team and investor. The project can be successful with two factors, i.e., completion within time and fund limit and meeting the expectations of stakeholders and the audience it is being designed for. Seeking different perspectives, generally, the budget is the joint entity posing a limitation to any project. 

Thus, effective project budgeting is vital in delivering a successful project. The article will help you understand a project budget, how to establish efficient project budgeting, and its tools, techniques, and benefits.

A project budget is a plan of expenditures to run the project effectively. Project budgeting is the tool and process that evaluates all possible expenditures a project will incur. It means that the project budget involves consideration of all costs that can be included in activities and resources to complete the project successfully. The cost of activities and resources may involve direct or indirect expenses. Training costs, workforce and equipment costs, material costs, and other associated costs can be incurred suddenly to execute the project. 

Project budgeting covers cost estimation and offers a systematic budget plan that aids the project management team in appropriately implying and handling the cash flow without causing loss to ongoing projects.

Project budget management is a crucial step to ensure the successful completion of the project. Accurate project budgeting allows the team to efficiently plan the project resource acquisition, activities, and deployment of team members, offering standard guidelines based on which project needs to be evaluated. Furthermore, effective project budgeting allows the team to make informed decisions for controlling deviations so no loss will be marked during the project's progress. 

Here are some essential factors that make project budgeting a significant component in project management:

• Effective project budgeting offers clarity in guiding the project team and provides visibility for contributors on the finance requirements of the project.
• Project budgeting empowers team management to find and understand the uncertainties. It helps them encounter problems, respond effectively, and mitigate budgeting plans.
• Project teams can make better and more effective planning based on an accurate budget to stabilize their progress and not have to alter decisions and make compromises later in certain activities and resources.
• Budget planning in project management eases work prioritization. It contributes to efficient resource allocation and helps in cost control. Works best with better planning and efficient decision-making concerning activity prioritization, resource allocation, and possible avenues. The process helps in cost control throughout the entire progress of the project without delaying work or affecting quality.
• Effective project budgeting enables optimized resource usage by setting necessary limitations and boundaries on expenses based on specific standard guidelines made during the project planning.
• The project budgeting keeps track of the expected and actual project expenses.  

Making a realistic project budget is essential for better project management. The manager must remember all the critical factors influencing the project's expenses. Here are a few important considerations to understand the aspects of the project budgets for creating an effective plan.

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Project Scope Baseline

A project baseline is an understanding of the scope of deliverables in the project. It comprises a project scope statement and work breakdown structure (WBS) where the WBS dictionary defines the elements in the WBS. Also referred to as the official plan, the project scope must consider all the activities and resource acquisition needed to complete the project successfully. An adequate understanding of the agreed-upon scope is necessary to create the project budget.

Estimation of Activity Cost

It is said that last-level activities must be considered when we start determining the budget. The step ensures that all individual activities are considered in the beginning to estimate the actual cost without getting stuck in an unrealistic approach to project budgeting.

Criteria of Estimates

Distinct projects possess different expenses and funding availability. Certain assumptions, constraints, and organizational guidelines impact project budgeting. These factors are called the basis or criteria of project budgeting that aid in estimating the cost and ensuring reasonable accuracy.

Schedule of Project and Resource

While making the project budget, the project management team must better understand the schedules of budget and resource requirements during the project. Clarity in schedules aids in determining the type of expenses needed at distinct levels and time frames of the project, which further eases fund grants. 

Risk Register

The Project management team must evaluate enough management reserves and contingency. It helps them to deal with project risks effectively. Therefore, risk registers are required to consider risk factors and take them into account to deliver effective results.

A well-developed project enables team management and collaborators to stay within their budget goals and deliver a successful result. Follow the strategies for effective budgeting.

• All collaborators and investors must be asked to reveal the nuances that any person could miss. Furthermore, the involvement of all investors helps to ensure buy-in and due consideration with respect to any alteration request.
• Break the project into distinct categories of activities at different levels. This approach can help in understanding the micro and major-level tasks in detail.
• Never ignore indirect expenses of the project that may include currency conversion fees or tax.
• Mandatorily associate the budget with project aims, goals, and organizational objectives.
• The best project budget must be created at the beginning of the project. However, a consistent update is necessary to reflect the progress of the project and the changed conditions. 

Some tools and technologies can make project budgeting easy for management teams. 

• Scoro: A tool for forecasting, budgeting, harvesting financial data, and invoices management. Ideal for generating project budget proposals and in-depth budget models.
• Harvest: Multi-use software that can manage projects and track the time. It keeps track of working hours, creates email alerts according to the project, sets the budgets depending on overall project cost, and subsequently boosts the efficiency of the team. 
• Teamwork: The tool offers growth and scale plans for efficient budgeting. It provides distinct budget templates to ease creating and implementing personalized budget plans. 
• Paymo: The software that focuses on transactions in project budgeting. It reduces the automated payments, allows time tracking, and generates customized invoices. The tool's overall significance is assisting in tracking expenditures to remain within budget. 

Effective project budgeting aids project management teams, investors, and collaborators in monitoring the entire project's progress and taking proactive steps quickly when required. It ensures quality project budgeting, and the project will be completed successfully with no loss. Here are some benefits of efficient project budgeting that you should know.

• Setting clear parameters and expectations of the success of every contributor for their project. The project budget aids in acknowledging all types of expenditures, the need for funds at distinct levels of the project, and the effective implication of resources.
• Project budgeting enables project team leads to secure project funding and requires resources for executing the project effectively.
• Project budgeting helps collaborators offer clarity in reference points and expectations. The process enables making informed decisions on the project's priorities, effective resource allocation, and potential risk mitigation.

Designing and planning a project requires careful consideration of all aspects involved to expect a smooth workflow. The essential requirements are:

• The collaboration of team members.
• Timely delivery of raw materials.
• Provision of the equipment as per the need.

The base of these and all other requirements is a perfectly planned budget. 

The significance of project budgeting makes it an essential component of project planning. It requires an experienced individual who can take in all the factors to give out a worthy project budget. Using different tools and techniques assists in delivering the research thoroughly created and easily implementable project budget. 

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Program Name PMP® Certification Training Course PMP Plus Post Graduate Program In Project Management Geo All Geos All Geos All Geos University PMI Simplilearn University of Massachusetts Amherst Course Duration 90 Days of Flexible Access to Online Classes 36 Months 6 Months Coding experience reqd No No No Skills you wll learn 8+ PM skills including Work Breakdown Structure, Gantt Charts, Resource Allocation, Leadership and more. 6 courses including Project Management, Agile Scrum Master, Implementing a PMO, and More 9+ skills including Project Management, Quality Management, Agile Management, Design Thinking and More. Additional Benefits -Experiential learning through case studies -Global Teaching Assistance -35PDUs -Learn by working on real-world problems -24x7 Learning support from mentors -Earn 60+ PDU’s -3 year course access Cost $$ $$$$ $$$$ Explore Program Explore Program Explore Program

Q1. How does effective project budgeting impact overall project success?

Ans. Project budgeting categories and prioritizes the budget, setting the expenditure to be done at the right place and time. Effective resource allocation while considering the possible deviations in the project helps to lead the project budgeting to overall project success. 

Q2. What are the potential consequences of poor project budgeting?

Ans. Project budgeting can lead to adequate or excess budget allocation, estimation errors, sufficient risk management, delayed transactions, and lack of contingency planning.  

Q3. How do AI and technology revolutionize project budgeting practices?

Ans. Artificial intelligence or AI automates the project budgeting task. They help in bill documentation and money allocation based on the level and categories of the project. The incorporation of AI eases the customization and adds to the systematic tracking and convenience for organizations. 

Q4. What tactics are effective for controlling project budget overruns?

Ans. Some of the effective tactics for controlling project budget overruns involve

• Acknowledging the reason behind budget overruns and mitigating the deviation.
• Focusing on prior activities and effective allocation of resources.
• Keep track of associated risk and enable efficient risk management.

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The Complete Glossary of Project Management Terminology

By Kate Eby | February 24, 2017

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Establishing standardized definitions for common project management terms is a challenge, even for seasoned pros. To help you achieve this goal, we’re offering this authoritative reference guide, pulling together a complete list of project management terminology. This glossary contains more than 600 terms and provides simple, clear explanations.

Included on this page, you'll find definitions from A-Z, from activity codes and dependencies , to performance reporting and timeboxes . 

Project Management Terms

A - project management terms.

Accept - A decision to take no action against a threat. Project teams typically accept risks when they fall below risk thresholds or when the team thinks it best to act only if and when a threat occurs. (See also risk acceptance )

Acceptance criteria - The specific requirements expected of project deliverables. To be formally accepted, deliverables must meet all acceptance criteria.

Acceptance test - A test in which a team of end users runs a product through its full range of use to identify potential problems.

Acquisition process - This process obtains the personnel and resources necessary for project work. Acquisitions are closely coordinated with project budgets and schedules.

Action item - An activity or task that must be completed.

Action item status - This tracks an action item’s progress from creation to closure. Since work packages comprise multiple action items, keeping action item statuses updated is important for project progress.

Activity - The smallest unit of work necessary to complete a project work package (which includes multiple activities). Time, resources, and finances are required to complete each activity.

Activity code - An alphanumeric value by which activities can be grouped and filtered. A code is assigned to each activity.

Activity identifier - A unique alphanumeric value by which an individual activity can be distinguished. An activity identifier is assigned to each activity.

Activity label - A short descriptor for an activity. Activity labels may be placed below arrows representing activities in activity-on-arrow (AOA) diagrams.

Activity list - This documents all the activities necessary to complete a project. Each activity is accompanied by its activity identifier and a description of the work it entails.

Activity-On-Arrow (AOA) - In this network diagram, arrows represent activities and nodes represent events or milestones. AOA diagrams can only indicate finish-to-start relationships.

Activity-On-Node (AON) - In a network diagram of this nature, nodes represent activities and arrows illustrate logical relationships between activities. AON diagrams can illustrate four relationship types: start-to-start, start-to-finish, finish-to-start, and finish-to-finish.

Actual cost of work performed (ACWP) - This represents the total cost incurred for work done in a given period of time.

Actual duration - The length of time taken to complete an activity.

Actual effort - The amount of labor performed to complete an activity. It is expressed in person-hours or similar units of work.

Actual expenditure - The sum of costs paid from a budget.

Actual progress - This measures the amount of work completed on a project. It is used to assess the comparison between project progress and project baselines and is usually stated as a percentage.

Adaptive project framework (APF) - An approach to project management that rejects traditional, linear project management and instead accepts changing requirements and allows projects to be affected by external business environments. The APF stresses flexibility in many aspects of project management and focuses on performing and evaluating project work in stages to allow room for replanning due to changing business goals, objectives, and requirements.

Administrative closure - This refers to the set of formal requirements fulfilled to end a project. Among other things, it involves documenting the formal acceptance of deliverables and ensuring that all relevant information is sent to a project’s sponsor and stakeholders.

Aggregate planning - This strategy uses demand forecasts to manage scheduling and planning for project activities between three and 18 months in advance, so that the necessary resources and personnel can be efficiently acquired or assigned.

Agile - The Agile family of methodologies is a superset of iterative development approaches aimed at meeting ever-changing customer requirements. Agile development proceeds as a series of iterations, or sprints, with incremental improvements made in each sprint. Since agile projects do not have fixed scopes, agile methodologies are adaptive, and the iterative work is guided by user stories and customer involvement.

Agile project management - Agile project management draws from concepts of agile software development. Agile approaches focus on teamwork, collaboration, and stakeholder involvement, as well as the use of iterative development methods.

Agile software development - Agile software development originates from the Agile Manifesto , a set of principles that emphasizes meeting changing requirements through collaborative development and making ongoing improvements through iteration. It stresses the importance of being reactive to rapid changes in external environments.

Allocation - The assigning of resources for scheduled activities in the most efficient way possible. (See also resource allocation )

Alternative analysis - The evaluation of possible courses of action for project work in order to find the most suitable course of action.

Analogous estimating - This technique uses historical project data to prepare time and cost estimates. It is considered the most inaccurate estimation technique. (See also top-down estimating )

Analytical estimating - This technique computes total project time and cost estimates by preparing estimates for each project activity and adding them together. Analytical estimating is considered the most accurate estimation technique. (See also bottom-up estimating )

Application area - The specific project category of which the project is a part. Application areas can be defined on the basis of project products’ characteristics or applications or by the projects’ customers or stakeholders.

Apportioned effort - Project work associated with components of a work breakdown structure and performed in proportion, with discrete effort. Since the amount of apportioned effort (which includes activities such as quality assurance) depends directly on the amount of discrete effort, it cannot be considered separately from discrete effort. It is one of three types of activities used to measure work performance as part of earned value management.

Approach analysis - During the project planning phase, this type of analysis is used to examine the various methods by which a project’s goals may be achieved.

Arrow diagramming method (ADM) - A method of constructing a network diagram that uses arrows to represent activities and nodes to represent events or milestones. The ADM is used to construct activity-on-arrow (AOA) diagrams.

Artifact - Items that support software development. Artifacts include both items associated with the process of development, such as project plans, and items used to support actual aspects of development, such as use cases and requirements.

Assignment contouring - The process of assigning people to project work for changing numbers of hours per day as the project moves through different stages. Assignment contouring is typically done using project management software.

Assumption - Factors deemed to be true during the project planning process, though proof of their validity is not available. A project’s assumptions can affect its risks and outcomes, so you must consider them carefully.

Authorization - In general, authorization is the power to make decisions that the management grants. The specific remit for authorization varies on a case-by-case basis.

Authorized work - Work that management or others in authority approve.

Avoid - A response to a negative risk that seeks to ensure the risk does not occur or (if the risk cannot be eliminated) seeks to protect the project objectives from the negative risk’s impact. (See also risk avoidance )

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B - Project Management Terms

Backward pass - This calculates late-start and finish dates for project activities by working backwards from the project end date.

Balance - A phase in the portfolio life cycle that involves balancing a portfolio’s components based on risk, costs, and use of resources. It is an aspect of organizational project management. (See also portfolio balancing )

Balanced scorecard - A Balanced scorecard is a concept or tool used to assess whether an organization’s activities are correlated with its general vision and objectives.

Bar chart - A diagrammed calendar schedule of project activities’ start and end dates in logical order. (See also Gantt chart )

Baseline - This term represent the costs and schedules approved at the start of the project. They use baselines as a basis for monitoring and evaluating performance.

Benefits realization -This term focuses on ensuring that project results give customers and stakeholders the benefits they expect.

Blueprint - A document that explains what a program means to accomplish and describes a program’s contribution to organizational objectives.

BOSCARD - This method details and considers the background, objectives, scope, constraints, assumptions, risks, and deliverables of new projects.

Bottom-Up estimating - This calculation computes total time and cost estimates for projects by preparing individual estimates for each of a project’s activities and adding them together. Bottom-up estimating is considered the most accurate estimation technique. (See also analytical estimating )

Brief -  This refers to the document produced during a project’s concept phase. It is the primary document outlining requirements.

Budget - The sum of money allocated for a project. The term may also refer to a comprehensive list of revenues and expenses.

Budgeted cost of work performed (BCWP) - The portion of the budget allocated to scheduled work actually performed in a period of time. (See also earned value )

Budgeted cost of work scheduled (BCWS) - The portion of the budget allocated to work scheduled to be performed in a period of time. (See also planned value )

Burn down chart - A graph that shows the relationship between the number of tasks to be completed and the amount of time left to complete these tasks.

Burst point - A point in a network diagram at which multiple successor activities originate from a common predecessor activity. None of the successor activities may start until one finishes the predecessor activity.

Business analysis - The practice of identifying and solving business problems. It focuses on creating and implementing solutions to business needs via organizational development, process reengineering, or any number of other methods.

Business case - A documentation of the potential outcomes of a new project, including benefits, cost, and effects. It shows the reasoning for starting the project.

Business imperative - An issue, situation, or circumstance with the potential to affect a business in one way or another, depending on the course of action used to address it. Organizations prioritize business imperatives for actions that will realize any potential benefits or avoid any potential harm.

Business model - A company’s business model is the system by which the organization’s  profitable activities are planned, structured, and executed, and by which it interacts with its customers.

Business operations - The entire ensemble of activities or business processes through which a company uses its assets to create value for its customers.

Business process - A Business process is a system of activities by which a business creates a specific result for its customers. There are three categories of business processes: management processes, operational processes, and supporting processes.

Business process modeling (BPM) - Business process modeling is the representation, analysis, and evaluation of business processes in an effort to improve them.  

Business requirements - The conditions a product must satisfy to effectively serve its purpose within a business.

Business value - The business value of a project is the sum of positive effects — tangible and intangible — it has on the business.

C - Project Management Terms

Calendar unit - The smallest unit of time — usually hours or days — by which project activity durations are measured.

Capability maturity model (CMM ) - This model is used to assess the maturity of business process capabilities. It was created to assess the capabilities of software development processes but is now used in a number of other industries as well. Like other maturity models, the CMM allows organizations to assess themselves against external benchmarks and provides recommendations for improvement.

CAPEX - CAPEX, or capital expenditure, is the money a company spends to acquire new fixed physical assets or upgrade old ones, typically for long-term use.

Case study - A case study involves extensive and in-depth formal research into an area of a company, a situation, or an event. Case studies typically result in formal reports that are published in academic or professional publications. They investigate important, singular, or locally representative cases that contribute to the advancement of knowledge.

Certified Associate in Project Management (CAPM) - This is an entry-level certification for project managers offered by the Project Management Institute. It is designed to build knowledge of project management processes and terms.

Champion - A project champion makes project success a personal responsibility. This person pushes the project team to work hard, liaise with stakeholders on behalf of the project, and support the project manager. Project champion is an informal role.

Change control - Change control is the process of identifying, evaluating, approving, and implementing changes to a project. It ensures that changes are introduced in a controlled and effective manner and that any adjustments necessitated by changes are also addressed.  

Change control board - An appointed group of stakeholders who evaluate proposed changes and decide when and whether to make them.

Change control system/process - The process by which changes to the project are evaluated before approval, implemented, and documented.

Change freeze - The point at which scope changes to a project are no longer permissible.

Change management plan - A Change management plan details the change control process. It is created to ensure all changes are managed according to procedure. Change management plans can be created for individual projects or for organizations undergoing transitions.

Change request - A formal document submitted to the change control board that requests changes to the finalized project management plan. Change requests are usually made only for significant changes, as smaller changes with little to no impact on the project work can be brought to the project manager.

Client/Customer - The people who will directly benefit from a project. A team executes a project with specific attention to a client’s requirements.  

Closing phase - The final phase of the project management life cycle, in which all aspects of the project are officially completed and closed. This includes making sure that all deliverables have been given to the client, that the team notifies suppliers of completion, and that the team updates stakeholders regarding the end of the project and overall project performance.

Code of accounts - An alphanumeric system used to assign unique identifiers to all work breakdown structure components.

Collaborative negotiation - Collaborative negotiation entails all negotiating parties obtaining at least some of what they want from negotiations.

Communications log - This document is used to track all project-related communications. It is organized and edited by the project manager and details who communicated, when and where the communication took place, what information was shared, and the results of the communication.

Communications management plan - This plan states who will send and receive information on aspects of the project, what details are communicated, and when communications are sent. It is part of the project management plan.

Communities of practice - Groups of people who share an area of interest within project management. They meet regularly to share and develop knowledge in the area of interest.

Competence - The ability and knowledge required to perform the tasks associated with a specific role.

Competence framework - The set of competence expectations by which one assesses a person’s suitability for a specific role.

Concept - The beginning phase of the project management life cycle. In the concept phase, the team presents the opportunity or problem (along with possible solutions) and examines the general feasibility of the project.

Conceptual project planning - Conceptual project planning involves developing the documentation from which a project’s organization and control system will originate.

Concurrent engineering - A product development approach where design and development are carried out at the same time. It is used to shorten the development life cycle and to release products more quickly. The simultaneous execution of design and development can help to improve design practicality.

Configuration - Configuration of a product involves shaping its functions and characteristics to make it suitable for customer use.

Configuration management - Configuration management ensures that the product of a project meets all necessary specifications and stipulations. It provides well-defined standards for the management and team to guarantee that they meet quality and functional requirements, as well as any other characteristics considered important.

Consensus - A decision agreed upon by all members of a group.

Constraint - A limitation on a project. Among other things, constraints may be financial or based on time or resource availability.

Constructability - Constructability is a concept used in complex hard projects to assess and examine the entire construction process before beginning construction. It reduces the number of errors, setbacks, and delays once construction work actually begins.

Construction - The process by which a team builds infrastructure. Construction projects are complex. Engineers and architects supervise them, while a project manager manages the project work.

Consumable resource - A nonrenewable resource that cannot be used once consumed.

Contingency plan - An alternative or additional course of action planned in anticipation of the occurrence of specific risks.

Contingency reserve - An allocation of time or money (or both) set aside for the occurrence of known possibilities that could delay a project or make it more expensive. It is not the same as a management reserve, which is an allocation made for unforeseeable circumstances. Use of a contingency reserve is typically authorized upon the occurrence of a contingency.

Contract administration - The process by which a team manages a relationship with a contracting party. It establishes protocols for dealings between contracting parties.

Contract closeout - The process of determining whether the terms of a contract were completed successfully and of settling any remaining terms.

Control Account - A work breakdown structure tool that allows aggregation of costs for work packages as part of earned value management calculations.

Control chart - Control charts compare process results with historical averages and process control limits to show whether a process meets results expectations. If a process’s results are inconsistent or fall outside process control limits, it may need to be examined and adjusted.

Core process - A process that follows an established order and is central to the performance of the process system or project of which it is part.

Corrective action - A step taken to bring work back into alignment with performance expectations after it has failed to meet expectations. A corrective action, which is reactive, is not the same as a preventive action, which is proactive.

Cost baseline - The sum of work package estimates, contingency reserve, and other associated costs by which project performance is assessed. A formal change control process is necessary to change the cost baseline.

Cost benefit analysis - A Cost benefit analysis is used to weigh project costs against anticipated tangible project benefits.

Cost engineering - The application of scientific and engineering principles to several aspects of cost management. Among other things, cost engineers contribute to estimation procedures and project cost management. Cost engineering may also be called project controls in some industries.

Cost management plan - This plan details how project costs will be planned, funded, and controlled. It is a part of the project management plan.

Cost of quality - The cost associated with ensuring project quality. This cost may mean the difference between unacceptable and acceptable project results.

Cost overrun - A cost overrun occurs when unexpected costs cause a project’s actual cost to go beyond budget.

Cost performance index - A cost performance index measures the cost efficiency of a project by calculating the ratio of earned value to actual cost.

Cost plus fixed fee contract (CPFC) - Under a cost plus fixed fee contract, the seller is reimbursed for costs incurred and paid a predetermined fixed fee.

Cost plus incentive fee contract (CPIF) - Under a cost plus incentive fee contract, the seller is reimbursed for costs incurred and paid an additional fee if they meet performance criteria specified in the contract.

Cost plus percentage of cost contract (CPPC) - Under a cost plus percentage of cost contract, the seller is reimbursed for costs incurred and paid an additional amount equal to a percentage of the costs incurred if they meet performance criteria specified in the contract.

Cost reimbursable contract - A cost reimbursable contract is a contract under which a seller is reimbursed for costs incurred and paid an additional sum as per a predetermined agreement as profit. They are typically negotiated for projects with costs that are not fully known or not well defined.

Cost variance - The Cost variance of a project is its earned value minus its actual cost. A negative cost variance indicates that a project is running over budget. A positive cost variance indicates that a project is running below budget.

Cost/schedule impact analysis - A cost/schedule impact analysis determines the effects of a particular change on a project’s cost or schedule.

Crashing - A schedule compression technique used to speed up project work by increasing the rate at which critical path activities are completed by adding more resources — usually more personnel or more equipment. Crashing increases project costs, so it is used first on activities that can be sped up at the least additional cost.

Critical chain project management (CCPM) - Critical chain project management is an approach to managing projects that emphasizes the resources needed to complete project activities over activity order and durations set in a schedule. It uses resource optimization techniques like resource leveling and requires that activity start times be flexible.

Critical incident stress debriefing (CISD) - CISD is a psycho-educational exercise for small groups who have experienced a traumatic event. It is sometimes used in project management to help project teams cope with trauma and to rebuild team cohesion.

Critical path activity - A scheduled activity that is part of a project’s critical path.

Critical path method - The Critical path method is used to estimate the shortest length of time needed to complete a project and to determine the amount of float for activities that are not part of the critical path.

Critical success factor - A critical success factor is an aspect of a project that is crucial to the success of the project.

Criticality index - Each project activity is assigned a percentage called a criticality index, which is a measure of how frequently it is a critical activity in project simulations. Activities with high criticality indexes are likely to prolong project duration if delayed.

Current finish date -  The most up-to-date estimate of when an activity will finish.

Current start date - The most up-to-date estimate of when an activity will start.

Current state - A detailed representation of current business processes that is used as a point of comparison for efforts to analyze and improve processes’ efficiency, effectiveness, and outputs.

D - Project Management Terms

Data date - A data date, also called an as-of date, is a point at which a project’s status is measured and documented. It separates actual data from scheduled data.

Decision tree analysis - A diagrammatic technique used to illustrate a chain of decisions and to examine the implications of multiple decision-making or situational outcomes.

Decomposition - The hierarchical breaking down of project deliverables into smaller components that are easier to plan and manage.

Defect repair - An action taken to remedy a product that is nonfunctional or does not match expectations or requirements.

Define - The phase in the portfolio life cycle in which projects, programs, and any organizational changes needed to realize strategic objectives are identified and examined.

Definitive estimate - A definitive estimate reaches a total project cost estimate by computing cost estimates for all a project’s work packages. Definitive estimating is considered a highly accurate estimation technique, with estimates falling within a ten-percent range of the actual budget.

Deflection - The transferring of risk to another party, generally via a contract.

Deliverable - A final product or product component that must be provided to a client or stakeholder according to contractual stipulations.

Delphi technique - An estimation method based on expert consensus. Experts make estimates individually and simultaneously and then review their estimates as a group before making another set of estimates. The process is repeated, with the pool of estimates typically becoming narrower after each round of review until a consensus is reached. (See also wideband delphi )

Dependency - A logical relationship between project activities in a network diagram that determines when a dependent activity may begin.

Discrete effort - Project work directly associated with components of a work breakdown structure. It is directly measurable. Discrete effort is one of three types of activities used to measure work performance as part of earned value management.

Discretionary dependency - The preferred way to sequence activities when there is no logical limitation on how they must be ordered.

Do nothing option - An element of a project business case that states the consequences, if any, of not undertaking the project.

Drawdown - A method used to exercise control on the release of project funds. Instead of making entire project budgets available from the outset, management may choose to release funds at specific times. These releases are called drawdowns. Drawdowns may coincide with phase gates so that funds are released at the beginning of each phase.

Dummy activity - In activity-on-arrow diagrams, where arrows represent activities, dummy activities show logical relationships between activities. They are not actual activities themselves - dummy activity arrows are drawn with broken lines to differentiate them from regular activity arrows.

Duration - The amount of time taken to complete an activity or task from start to finish.

Duration compression - Duration compression techniques shorten a project’s duration without reducing its scope. This typically requires additional expenditure. There are two main duration compression techniques: crashing and fast tracking. (See also schedule compression technique )

Dynamic systems development method - The dynamic systems development method is one of the agile product development methodologies. Like other members of the agile family, it conducts development in a series of iterations, with user-story-based improvements made in increments. The dynamic systems development method operates with fixed cost and time constraints and uses the MoSCoW prioritization method to identify the desired product requirements with these constraints in mind.

E - Project Management Terms

Early finish date - The earliest time by which a scheduled project activity can logically finish.

Early start date - The earliest time by which a scheduled project activity can logically start.

Earned schedule - A method of measuring schedule performance that improves upon traditional earned value management. Earned value management tracks schedule variance only in terms of money and not in terms of time and thus does not accurately indicate schedule performance by the end of a project. To address this discrepancy, earned schedule theory uses the same data as traditional earned value management but tracks schedule performances separately with respect to money and time.

Earned value - A concept used to gauge project schedule and cost performance. Portions of the project budget are assigned to components of the work breakdown structure, and successful completion of a work breakdown structure component is understood as value earned through work.

Earned value management - A method of measuring project performance and progress with regard to scope, time, and costs. It is based on the use of planned value (where portions of the budget are allotted to all project tasks), and earned value (where progress is measured in terms of the planned value that is earned upon completion of tasks).

Effort - The amount of labor needed to complete a task. It is measured in person-hours or similar units.

Effort estimate - A calculated approximation of the effort — measured in staff-hours or similar units — needed to complete an activity.

Effort management - The most efficient allocation of time and resources to project activities.

End user - The person or persons who will eventually use the product of a project. Products are designed with end users in mind.

Enhancement, maintenance, and upgrade (EMU) - Enhancement, maintenance, and upgrade are project classifications used in the software development industry. Enhancement projects involve improving the functionality or performance of software. Maintenance projects keep software functioning as expected. Upgrade projects create a new version of the software, called a release.

Enterprise environmental factors - Internal and external factors that can impact projects. They include such things as climate, available resources, and organizational structure.

Enterprise modeling - Enterprise modeling is the creation of a model to represent an organization’s structure, processes, and resources. Enterprise models are built to increase understanding of how organizations work. They form the basis of improvement or restructuring efforts.

Epic - A set of similar or related user stories.

Estimate at completion (EAC) - The estimated total cost for all project work, calculated as the sum of the actual cost and the estimate to complete.

Estimate to complete (ETC) - At a given point in a project, the estimate of the cost of the work that still needs to be completed.

Estimating funnel - A metaphor for the increased accuracy in estimation made possible as a project progresses.

Estimation - The use of estimating techniques to reach approximations of unknown values.

Event chain diagram - A visual representation of a schedule network based on event chain methodology. It shows relationships between project activities and risk events.

Event chain methodology - A schedule network analysis method that enables uncertainty modeling. It is used to identify risk events’ impact on a schedule.

Event-Driven - The adjective describes an action that is prompted by the occurrence of an event.

Execution phase - The execution phase begins after activity approval and is the phase in which the team executes the project plan. Execution is typically the longest and most expensive phase in the project management life cycle.

Executive sponsor - Typically a member of the organization’s board who is ultimately responsible for the success of the project. They provide high-level direction to project managers and are accountable to the board for project success.

Expert judgment - The practice of using expert opinion to guide decision making.

External dependency - An outside relationship that affects the completion of a project activity.

Extreme programming (XP) - An agile software development methodology that emphasizes a high degree of responsiveness to evolving customer demands. Development cycles in extreme programming are short, and releases are frequent. Its main features include high-volume communication with customers and pair programming.

Extreme project management (XPM) - An approach to project management used mostly for complex projects with a high degree of uncertainty. XPM is designed for projects where requirements are expected to change. Therefore, it focuses on flexibility more than rigid scheduling. Where traditional project management proceeds sequentially through the project management life cycle and thus clearly defines problems, scopes, and solutions, extreme project management accepts that all three aspects will change as the project proceeds and thus emphasizes continual learning over deterministic planning.

F and G - Project Management Terms

Fallback plan - A predetermined alternative course of action adopted if a risk occurs and  a contingency plan proves unsuccessful in avoiding the risk’s impact.

Fast tracking - A schedule compression technique or duration compression technique in which the duration of a critical path is shortened by performing sections of some critical path activities concurrently instead of consecutively.  

Feasibility study - An evaluation of how likely a project is to be completed effectively, or how practical it is, taking resources and requirements into consideration.   

Finish-To-Start - In a finish-to-start relationship, a successor activity cannot start until a predecessor activity has finished.

Finish-To-Finish - In a finish-to-finish relationship, a successor activity cannot finish until a predecessor activity has finished.

Fishbone diagram - A fishbone diagram is used in project management to identify and categorize the possible causes of an effect. (See also Ishikawa diagram )

Fixed duration - A task in which the time required for completion is fixed.

Fixed formula method - The fixed formula method calculates earned value in a given period of time by splitting a work package budget between the start and completion milestones of a work package. A known proportion of value is earned upon beginning the work package, and the rest is earned upon completing the work package.

Fixed price contract (FPC) - A fixed price contract pays an agreed-upon fee and does not incorporate other variables, such as time and cost.

Fixed units - A task in which the number of resources used is fixed.

Fixed work - A task in which the amount of effort required is fixed.

Float - A measure of the schedule flexibility involving a particular task.

Flowchart - A diagram that lays out the complete sequence of steps in a process or procedure.

Focused improvement - An improvement strategy based on the theory of constraints. Attention is focused on addressing one limiting factor — called a constraint — at a time in order to optimize a system. Each constraint is improved until it no longer limits the system’s performance.

Fordism - Fordism, named for Henry Ford, is a manufacturing system in which mass-produced goods are priced affordably enough that those producing them may reasonably buy them with their own wages.

Forecast - A prediction or estimation of future project status based on available information.

Formal acceptance - The step at which authorized stakeholders sign off on a product, indicating that it meets their expectations.

Forward pass - A technique used to calculate early start and finish dates by working forwards from a point in a project schedule model.

Free float - The amount of time by which an activity can be postponed without affecting the early start dates of a successor activity.

Functional manager - The individual in charge of all activities carried out by a particular functional department within an organization.

Functional organization - An organization which organizes and manages staff members in groups based on specialty areas.

Functional requirements - The working characteristics of a product. These are based on how end users will use the product.

Future state - A detailed representation of the ideal condition of a company’s business processes after improvement.

Gantt chart - A Gantt chart is a type of bar chart that shows all the tasks constituting a project. Tasks are listed vertically, with the horizontal axis marking time. The lengths of task bars are to scale with tasks’ durations. (See also bar chart )

Gate - An end-of-phase checkpoint at which decisions are made regarding whether and how to continue with the project. (See also phase gate )

Go/No go - A point in a project at which it is decided whether to continue with the work.

Goal - An objective set by an individual or an organization. It is a desired endpoint reached by setting and working towards targets.

Goal setting - The process of creating specific, measurable, and attainable goals and of setting deadlines for these goals if desired.

Gold plating - The practice of incorporating features and improvements that go beyond a product’s agreed-upon characteristics. This is generally done to boost customer satisfaction.

Governance - The structure by which roles and relationships between project team members and an organization’s high-level decision makers are defined.

Graphical evaluation and review technique (GERT) - A network analysis technique that uses Monte Carlo simulation to bring a probabilistic approach to network logic and the formation of duration estimates. It is an alternative to the PERT technique but is not often used in complex systems.

H, I, and K - Project Management Terms

Hammock activity - In a schedule network diagram, a hammock activity is a type of summary activity that represents a number of grouped - but unrelated -smaller activities that occur between two dates.

Handover - In the project life cycle, a handover is the point at which deliverables are given to users.

Hanger - An unplanned break in a network path, usually caused by oversights regarding activities or dependent relationships between activities.

HERMES - A project management method created by the Swiss government and used by IT and business organizations. It is a simplified project management method that can be adapted to projects with varying degrees of complexity. It provides document templates to expedite project-related work.

High-Level requirements - The high-level requirements explain the major requirements and characteristics of the final product, including its purpose as a product and within the company. (See also product description )

Historical information - Data from past projects used in the planning of future projects.

Human resource management plan - A human resource management plan details the roles of and relationships between personnel working on a project, as well as how personnel will be managed. It is part of the project management plan.

Hypercritical activities - Critical path activities with negative slack time. They are created when a sequence of critical path activities leading up to another activity is too long to be completed in the stated duration.

Information distribution - The channels used to provide stakeholders with timely information and updates regarding a project.

Initiation phase – The formal start of a new project. It involves receiving proper authorization and creating a clear definition for the project.

Inputs - The information required to start the project management process.

Inspection - The process of reviewing and examining the final product to assess compliance to initial requirements and expectations.

Integrated assurance - The process of coordinating assurance activities across a number of assurance providers.

Integrated change control - The coordination of changes throughout all aspects of a project, including scope, budget, and schedule.

Integrated master plan (IMP) - A project management tool used to break down project work in large, complex projects. It lists project tasks and events in a hierarchical structure and shows relationships between them.

Integrated master schedule (IMS) - An integrated master schedule is produced from an integrated master plan. It is a list of all project tasks represented as a networked schedule.

Integration management plan - A document that explains integration planning and details how changes to project aspects will be managed.

Integration planning - The process of deciding how project elements will be integrated and coordinated and how changes will be addressed throughout the project management process.

Integrative management - Management processes that coordinate a number of project aspects including cost, schedule, and resources (among others).

Invitation for bid - An invitation for expressions of interest that a procuring organization extends. (See also request for proposal )

Ishikawa diagram - Ishikawa diagrams are used in project management to identify the possible causes of an effect. (See also fishbone diagram )

ISO 10006 - A set of quality-management guidelines for projects. It is a standard created by the International Organization for Standardization.

Issue - Anything that can cause problems for a project. The term typically refers to major problems that cannot be tackled by the project team on their own.

Issue log - Project issues and the persons responsible for resolving them. It may also include issue status, plans for resolution, and resolution deadlines.

Iteration - A concept from iterative software development that specifies a fixed time cycle for development work, typically a few weeks long. The development life cycle consists of a number of iterations, sometimes with a functional version of the software produced at the end of each one. Iterative development prioritizes time over scope, so there are rarely concrete requirements to be achieved in an iteration.

Iterative development - Iterative development focuses on developing products in a series of repeated fixed-time iterations, instead of working towards a single deliverable. At the end of an iteration, the team assesses progress and sets targets for the next iteration.

Iterative and incremental development - Iterative and incremental development is any combination of the iterative and incremental development approaches. It is an alternative to the waterfall development method: instead of focusing on sequential development with a single end product, it passes through a number of development cycles, with an improved version of the product, called an increment, produced at the end of each iteration.

Kanban - The word kanban means visual signal in Japanese. Kanban is a visual communication approach to the project management process. It uses visual tools like sticky notes or virtual cards in an online bulletin board to represent project tasks and to track and indicate progress throughout a project.

Kickoff meeting - The first meeting between a project team and stakeholders. It serves to review project expectations and to build enthusiasm for a project.

Key performance indicator (KPI) - A Key performance indicator is a metric for measuring project success. Key performance indicators are established before project execution begins.

L - Project Management Terms

Lag/Lag time - A necessary break or delay between activities.

Late finish date - The latest possible date a scheduled activity can be completed without delaying the rest of the project.

Late start date - The latest possible date a scheduled activity can be started without delaying the rest of the project.

Lateral thinking - Lateral thinking involves using a roundabout method to inspire new ideas or solutions. It can be done in a variety of ways, from using a random word to choosing an object in a room as a basis for thought.

Lead/Lead time - The amount of time an activity can be brought forward with respect to the activity it is dependent upon.

Lean manufacturing - A production methodology based on the idea of streamlining and doing more with less, such as by providing customers with the same product value while eliminating waste and thus reducing production costs.  

Lean six sigma – Lean six sigma combines the no-waste ideals of lean manufacturing with the no-defects target of six sigma. The goal of Lean six sigma is to eliminate waste and defects so that projects cost less and deliver more consistent quality.

Lessons learned - The sum of knowledge gained from project work, which can be used as references and points of interest for future projects.

Level of effort - Work that is not directly associated with components of a work breakdown structure but that can instead be thought of as support work. Examples of level of effort include maintenance and accounting. It is one of three types of activities used to measure work performance as part of earned value management.

Life cycle - The entire process used to build its deliverables. Life cycles are divided into a number of phases. A variety of life cycle models are in use in project management.

Line of balance - A graphical technique used to illustrate relationships between repetitive tasks in projects such as building identical housing units. Each set of repetitive tasks is illustrated as a single line on a chart. Project managers look for places where dependent tasks intersect, indicating that the successor task must be delayed.

Linear sequential model - A linear sequential model moves through a project life cycle’s phases systematically and sequentially. It is typically used for small projects with straightforward requirements, since sequential development makes it difficult to revise design based on testing or preliminary feedback. (See also waterfall model )

Linear scheduling method - A graphical scheduling technique used to assign resources when project work consists of repetitive tasks. It focuses on maximizing resource use and reducing time wastage due to interruptions.

Logic network - A chronologically arranged diagram that shows relationships between project activities.

Logical relationship - A dependency between project activities or between project activities and milestones.

M - Project Management Terms

Management - The act of overseeing planning, personnel, and resources to achieve a goal.

Management process - The act of planning and executing a project or process to meet a defined set of objectives or goals. Management processes may be carried out at multiple levels within organizations, with the scale and scope of activities typically increasing up the organizational hierarchy.

Management reserve - An allocation of money or time (or both) to address unforeseeable circumstances that might delay or increase the costs of a project. A management reserve is not the same as a contingency reserve, which is an allocation made for known possibilities. The senior management must typically approve any release of funds from a management reserve.

Management science (MS) - A field of study that seeks to improve organizational decision making through the use of quantitative and scientific research methods. It evaluates management decisions and outcomes to find optimal solutions to problems, and thus enables better decision making. (See also operations research )

Master project - A master project file comprises a number of smaller projects, called subprojects, arranged hierarchically.

Matrix organization - Employees in a matrix organization report to more than one boss, with different lines of reporting representing different organizational projects or functions. A matrix structure can boost employee engagement and cross-field approaches to problem solving, but it can also create ambiguity over an employee’s role.

Maturity model - Maturity is the extent to which an organization’s methods, processes, and decisions are standardized and optimized. A maturity model assesses one or more of these aspects against a set of external benchmarks to determine an organization’s maturity level. Maturity models allow organizations to assess themselves according to management best practices. They typically offer recommendations for improvement.

Megaproject - A complex, large-scale, and high-investment project. Only hard projects may be termed megaprojects.

Merge point - A point in a network diagram at which multiple predecessor activities culminate in a single successor activity. The successor activity may not start until all the predecessor activities have finished.

Milestone - Milestones indicate specific progress points or events in project timelines. They mark progress needed to complete projects successfully.

Milestone schedule - A milestone schedule details the time relationships associated with project milestones.

Mission statement - A concise enunciation of the goals of an activity or organization. Mission statements are usually a short paragraph, and can be created for entire organizations or for individual projects. They are designed to provide direction and guidance.

Modern project management - An umbrella term for a number of contemporary management strategies. In contrast to traditional management, modern project management: features more recognition of quality and scope variation; refines processes more frequently; stresses collective, interdisciplinary knowledge and team consensus over individual leadership. It is also less based on traditional hierarchies- modern project teams draw from a range of organizational levels and functional areas.

Monte Carlo simulation/technique - Monte Carlo simulation is a computer-based technique that performs probabilistic forecasting of possible outcomes to facilitate decision making. For each possible decision — from the most high-risk to the most conservative — a Monte Carlo simulation provides decision makers with a range of possible outcomes and the likelihood that each will occur.

MoSCoW - The MoSCoW prioritization method allows project managers to communicate with stakeholders on the importance of delivering specific requirements. The acronym indicates four categories of priority and importance for project requirements. Each requirement is prioritized as a “must have,” a “should have,” a “could have,” or a “won’t have.”

Most Likely Duration - An estimate of the most probable length of time needed to complete an activity. It may be used to compute expected activity duration through a technique called three-point estimation.

Motivation - A reason or stimulus that makes a person behave in a certain manner. In management, motivation refers to the desire to pursue personal or organizational goals and is positively associated with productivity.

Murphy’s Law - Murphy’s Law — “What can go wrong will go wrong.” — is cited in project management as a reason to plan adequately for contingencies.

N - Project Management Terms

Near-critical activity - A near-critical activity has only a small amount of total float, or slack time. Near-critical activities have a high chance of becoming critical since their float is easily exhausted.

Near-critical path - A series of activities with only small amounts of total float, called near-critical activities. A near-critical path may become a critical path if its float is exhausted.

Negative variance - The amount by which actual project performance is worse than planned project performance. Negative variances in time and budget show the project is taking longer and is more expensive than planned, respectively.

Negotiation - A discussion to resolve an issue between parties. Negotiations can take place at any point during an activity and may be formal or informal.

Net present value (NPV) - Net present value is a concept that compares the present value of a unit of currency to its inflation-adjusted possible value in the future. It allows organizations to determine the financial benefits, or lack thereof, of long-term projects.

Network Path - In a schedule network diagram, a network path is a logically connected continuous series of activities.

Node - In a network diagram, a node is a point at which dependency lines meet. In activity-on-node diagrams, nodes represent activities. In activity-on-arrow diagrams, they represent events or stages.

Nonlinear management (NLM) - Nonlinear management refers broadly to management practices which emphasize flexibility, self-organization, and adaptation to changing circumstances. It runs counter to concepts in linear management, which seek to impose structure on organizations. The defining characteristics of nonlinear management include encouragement of out-of-the-box thinking, proactivity in responding to challenges, and flexible working arrangements for employees.

O - Project Management Terms

Objective - A clear, concise statement about what an activity is meant to accomplish. Objectives are written to be SMART: specific, measurable, achievable, realistic, and time-bound. A successful project meets all its stated objectives.

Operations and maintenance - Operations and maintenance is the stage at which a project or system is handed over to staff who will put it into full operation and carry out routine maintenance.

Operations management - The duty of ensuring that an organization's operations are functioning optimally. Operations managers maintain and improve the efficacy and efficiency of business processes. They seek to develop operations which deliver high-quality outputs while keeping costs low.

Operations research (OR) - A field of study that uses mathematical, statistical, and scientific methods to aid and optimize decision making. It uses techniques such as mathematical modeling and optimization to enable better decision making. (See also management science )

Opportunity - In project management, an opportunity is a possibility that can contribute to project objectives. Opportunities in project management are classified as a type of risk.

Opportunity cost - The opportunity cost of a particular course of action is the loss of potential gains from all alternative courses of action.

Optimistic duration - An estimate of the shortest length of time needed to complete a specific activity or task. It may be used to compute expected activity duration through a technique called three-point estimation.

Order of magnitude estimate - An order of magnitude estimate provides an early, imprecise idea of the time and money required to complete a project. It uses historical data from completed projects to form adjusted estimates for similar new projects, usually presenting these estimates as ranging from -25 percent to +75 percent of the actual budget to indicate the levels of uncertainty involved.

Organization - A formally structured arrangement of parties that actively pursues a collective purpose. Organizations can be affected by external factors, and they in turn can affect the external environment.

Organization development - Broadly, organization development involves strategic efforts to improve aspects of organizational performance such as efficacy, efficiency, and sustainability, as well as aspects of organizational health such as employee satisfaction and engagement. The term may also refer to a field of study focusing on the characteristics of organizations and their growth and evolution.

Organizational breakdown structure - A hierarchical model of an organization's units and all its activities. It shows relationships between activities and organizational units and indicates the responsibilities of each unit, thus providing a holistic perspective of how an organization operates.

Organizational enabler - Any practice, tool, knowledge, or skill base that facilitates an organization’s pursuit of its objectives may be termed an organizational enabler.

Organizational planning   - The strategic process of defining roles, responsibilities, and reporting hierarchies for parties within an organization, keeping the organization’s objectives in mind. It is carried out based on the principles and strategies by which an organization manages its members.

Organizational process assets - The specific set of formal and informal plans and processes in use at an organization. They also constitute the sum of knowledge and experience accumulated from past efforts. Organizational process assets are essentially the unique knowledge and processes that facilitate an organization’s operations.

Organizational project management - A strategic approach that emphasizes the effective management of projects, programs, and portfolios as the best way to pursue organizational objectives. It focuses on aligning an organization’s activities with its objectives and on managing these activities collectively, so they contribute to objectives.

Organizational project management maturity - A measure of an organization’s ability to meet its objectives by effectively managing all its activities. It can be assessed with a maturity model called the OPM3, which, like other maturity models, provides comparisons and recommendations for improvement.

Output - In project management, an output is the (usually physical) end product of a process.

Overall change control - The evaluation, coordination, and management of project-related changes. It concerns both the effective integration of changes to benefit the project and the management of adverse changes or emergencies, so that project activities are not disrupted.

P - Project Management Terms

P3 assurance - P3 assurance involves satisfying sponsors and stakeholders that projects, programs, and portfolios are on course to meet performance expectations, fulfill objectives, and meet requirements.

P3 management - P3 management refers collectively to the management of projects, programs, and portfolios.

Parallel life cycle - In a parallel life cycle, certain phases are conducted in parallel (they overlap).

Parametric estimating - A technique for estimating cost and duration based on using historical data to establish relationships between variables — for example, calculating unit costs and the number of units required to complete a similar activity.

Pareto chart - A Pareto chart is a combination bar chart and line graph where the bars represent category frequencies in descending order from left to right, and the line tracks the cumulative total as a percentage.

Path convergence - On a schedule network diagram, path convergence occurs when an activity has multiple predecessors.

Path divergence - On a schedule network diagram, path divergence occurs when an activity has multiple successors.

Percent complete - The percent complete indicates the amount of work completed on an activity as a percentage of the total amount of work required.

Performance measurement baseline - A performance measurement baseline uses the schedule, cost, and scope baselines to create a point of comparison by which project performance is assessed. Variance from the performance measurement baseline may prompt corrective action.

Performance reporting - Performance reporting is formally informing stakeholders about a project's current performance and future performance forecasts. The aspects of performance to be reported are typically laid out in a communications management plan.

Performing organization - The performing organization for a project is the one whose members and resources most directly perform the project work.

Pessimistic duration - The pessimistic duration is an estimate of the longest length of time needed to complete a specific activity or task. It may be used to compute expected activity duration through a technique called three-point estimation.

PEST analysis - A PEST analysis examines how political, economic, social, and technological factors might affect a project.

Phase - A distinct stage in a project life cycle.

Phase gate - A phase gate is an end-of-phase checkpoint where the project leadership reviews progress and decides whether to continue to the next phase, revisits work done in the phase, or ends the project.

Planned value (PV) - The budget assigned to the work it is meant to accomplish. (See also budgeted cost for work scheduled )

Planning - The development of a course of action to pursue goals or objectives.

Planning phase - In project management, planning refers specifically to a phase of the life cycle that involves creating plans for management, control, and execution, as well as for what a project is meant to accomplish.

Planning poker - A consensus-based estimation technique. It attempts to avoid the anchoring effect — where the first estimate forms a baseline for all subsequent estimates — by having project team members make estimates simultaneously and discuss their estimates until they reach agreement.

Portfolio - A collectively managed set of programs and projects.

Portfolio balancing - An aspect of organizational project management, portfolio balancing involves selecting and tailoring a portfolio’s components so they can be managed in line with organizational objectives.

Portfolio charter - A portfolio charter details the formal structure of a portfolio and describes what it is meant to achieve. It authorizes the creation of a portfolio and connects its management with organizational objectives.

Portfolio management - The collective management of portfolios and their components in line with concepts of organizational project management.

Portfolio manager - The individual responsible for balancing and controlling a portfolio in line with concepts of organizational project management.

Portfolio, program, and project management maturity model (P3M3) - The P3M3 assesses organizational performance in portfolio, program, and project management via a set of key process areas (KPAs). Like other maturity models, the P3M3 allows organizations to measure their performance against external benchmarks and provides a roadmap for project performance and delivery improvement.

Positive variance - The amount by which actual project performance is better than planned project performance. Positive variances in time and budget show the project is proceeding faster and is less expensive than planned, respectively.

Precedence diagramming method (PDM) - The process of constructing a project schedule network diagram. It illustrates the logical relationships between project activities and shows the order in which they must be performed by using nodes to represent activities and arrows to show dependencies. PDM also indicates early and late start and finish dates, as well as activity durations.

Precedence network - A precedence network visually indicates relationships between project activities. Boxes and links are used to represent activities and activity relationships. Precedence networks also detail the time relationships and constraints associated with activities.

Predecessor activity - In a schedule, a predecessor activity logically comes immediately before another activity, which is dependent on the predecessor.

Preventive action - A step taken to ensure future work does not stray from performance expectations. A preventive action, which is proactive, is not the same as a corrective action, which is reactive.

PRINCE2 - PRINCE2 is an acronym for projects in controlled environments, version 2. It is a project management methodology that emphasizes business justifications for projects.  PRINCE2 management is based on clear organization of project roles and responsibilities and managing when necessary rather than by obligation. It involves planning and executing projects in a series of stages, with stipulated requirements for each work package.

PRiSM - PRiSM is an acronym for projects integrating sustainable methods. It is a project management methodology that focuses on minimizing negative impacts on society and the environment. PRiSM focuses on sustainability. It is essentially green project management.

Probability and impact matrix - A visual framework for categorizing risks based on their probability of occurrence and impact.

Problem statement - A problem statement concisely states and describes an issue that needs to be solved. It is used to focus and direct problem-solving efforts.

Process - A process is a repeatable sequence of activities with known inputs and outputs. Processes consume energy.

Process architecture - The sum of structures, components, and relationships that constitute a process system, which is a complex system of processes. It refers to the overall design of a process system and comprises both infrastructure (the constituent parts and relationships) and suprastructure (the larger system of which the process system is part).

Process management - The act of planning, coordinating, and overseeing processes with a view to improving outputs, reducing inputs and energy costs, and maintaining and improving efficiency and efficacy.

Process-based project management - A methodology that views projects as means of pursuing organizational objectives. It involves using an organization’s mission and values to guide the creation and pursuit of project objectives. If project objectives aren’t in alignment with the company mission statement, they are amended accordingly.

Procurement management plan - A procurement management plan explains how an organization will obtain any external resources needed for a project.

Product breakdown structure (PBS) - A product breakdown structure is used in project management to record and communicate all project deliverables in a hierarchical tree structure. It may be thought of as a comprehensive list of all project outputs and outcomes.

Product description - A product description defines and describes a project product and its purpose. (See also high-level requirements )

Product verification - Product verification involves examining a deliverable to ensure, among other things, that it meets requirements, quality benchmarks, and expectations set by the product description. It is conducted before a product is presented to a customer for acceptance.

Professional development unit (PDU) - A continuing education unit that project management professionals (PMPs) take to maintain certification.

Program - A collectively managed set of projects.

Program charter - An approved document that authorizes the use of resources for a program and connects its management with organizational objectives.

Program Evaluation and Review Technique (PERT) - PERT is a statistical method used to analyze activity and project durations. PERT networks are typically illustrated with activity-on-arrow diagrams. The method makes use of optimistic, pessimistic, and most likely durations to estimate expected durations for project activities and to determine float times, early and late start dates, and critical paths. (See also three-point estimating )

Program management - The collective management of programs and their components in line with concepts of organizational project management.

Program manager - A program manager has formal authority to manage a program and is responsible for meeting its objectives as part of organizational project management methods. They oversee, at a high level, all projects within a program.

Progress analysis - The measurement of progress against performance baselines. Progress analysis collects information about the status of an activity that may prompt corrective action.

Progressive elaboration - The practice of adding and updating details in a project management plan. It aims at managing to increase levels of detail as estimates are revised, and more up-to-date information becomes available.

Project - A temporary, goal-driven effort to create a unique output. A project has clearly defined phases , and its success is measured by whether it meets its stated objectives.

Project accounting - In project management, project accounting deals with reporting on the financial status of projects. It measures financial performance and actual costs against budgets or baselines. Therefore, it complements project management while providing financial information to the sponsor. Project accounting may also be referred to as job cost accounting.

Project baseline - A project baseline comprises the budget and schedule allocations set during the initiation and planning phases of a project. Assuming the scope of the project remains unchanged, it may be used to determine variance from budget or schedule.

Project calendar - A project calendar indicates periods of time for scheduled project work.

Project charter - A Project charter is a document that details the scope, organization, and objectives of a project. It is typically created by a project manager and formally approved by the sponsor. A project charter authorizes the project manager’s use of organizational resources for the project and is understood to be an agreement between the sponsor, stakeholders, and project manager. (See also project )

Project cost management (PCM) - The use of an information system to estimate, measure, and control costs through the project life cycle. It aims at completing projects within budgets.

Project definition - A project definition or project charter is a document created by a project manager and approved by a project sponsor that details the scope, organization, and objectives of a project. It authorizes a project manager’s use of resources for a project and constitutes an agreement between the sponsor, stakeholders, and project manager (See also project charter )

Project management body of knowledge (PMBOK) - The PMBOK is a collection of project management-related knowledge maintained by the Project Management Institute.

Project management office - An organizational unit that oversees project management-related activities within an organization. It seeks to facilitate and expedite project work through the use of standard procedures. A project management office also functions as a repository of general, project-related knowledge and resources.

Project management process - A management process that encompasses all phases of a project, from initiation to the meeting of objectives.

Project management professional (PMP) - A Project management professional (PMP) is a person certified by the Project Management Institute upon completion of a course of formal education, an examination, and a certain number of hours managing projects. The certification is considered the gold standard in project management.

Project management simulators - Software training tools that teach project management skills via interactive learning and provide real-time feedback by which project management trainees can practice and reassess their decision making. Some simulators, such as the Monte Carlo simulator, are used to support and complement decision making in real projects.

Project management software - Project management software is a family of tools typically used in the management of complex projects. They provide the ability to: calculate estimates; create and manage schedules and budgets; track and oversee project activities and progress; assign and allocate resources; optimize decision making; and communicate and collaborate with members of a project team.

Project management triangle - A visual metaphor that illustrates relationships between scope, cost, and schedule. It expresses the idea that none of the three aspects can be amended without affecting the others.

Project manager - The person tasked with initiating, planning, executing, and closing a project, and with managing all aspects of project performance through these phases. The term is typically used for a project management professional. Project managers are able to use organizational resources for projects. They serve as contact points for sponsors, program managers, and other stakeholders.

Project network - A visual representation of the activities and dependencies involved in the successful completion of a project.

Project performance indicators - Measures used to assess project performance, usually with reference to project or performance baselines. These typically include cost, schedule, and scope statuses.

Project phase - A distinct stage in a project management life cycle. Each phase comprises a set of project-related activities.

Project plan - A document formally approved by the project manager, sponsor, and other stakeholders which states the approved cost, schedule, and scope baselines. It guides project execution, control, and quality and performance assessment. The project plan also forms the basis for communication between parties involved in a project. Project plans can vary in their levels of detail.

Project planning - Project planning is usually the longest phase of the project management life cycle. It involves determining cost, schedule, and scope baselines and using these to create a detailed roadmap for executing project activities and producing deliverables.

Project portfolio management (PPM) - A method of collectively managing a portfolio’s constituent programs and projects to pursue organizational objectives. It involves optimizing the mix and scheduling of projects to pursue objectives as effectively as possible. Project portfolio management is closely related to organizational project management.

Project schedule network diagram - A diagram is a visual representation of how scheduled project activities are ordered and related. Depending on the type of network diagram, boxes represent activities or events, and arrows indicate activities or dependencies, typically with expected durations.

Project scope statement - A project scope statement details what a project is meant to achieve and describes the deliverables expected. It forms the basis of measurable objectives by which the success of a project will be assessed. Project scope statements are typically part of project plans.

Project stakeholders - Broadly, a Stakeholder is any party which may be affected by a project. In project management, the term usually refers to parties with an interest in the successful completion of a project.

Project team - A project team is responsible for leading and collectively managing a project and its related activities through the project’s life cycle. Project teams may contain members from several different functional groups within an organization. Depending on the nature of the project, a project team may be disbanded upon completion of a project.

Project tiers - Project sizing categorizes projects into project tiers based on staff power or time required for completion to determine the most appropriate project management practices.

Projectized organization - A projectized organization arranges all its activities into a collection of projects, programs, and portfolios. Projects are typically completed for external clients or customers. The prioritization of project work means the project manager can utilize resources and assign work as they see fit.

Proof of concept - A proof of concept is derived from a pilot project or experiment that examines whether an activity can be completed, or a concept can be realized. It shows the feasibility of an idea.

Proport - The term proport is used to define the sum of unique skills that team members bring to a project. These skills can be harnessed for collective benefit.

Q - Project Management Terms

Qualitative risk analysis - A project management technique that subjectively analyzes risk probability and impact. The risks are categorized on a probability and impact matrix, and those deemed significant may undergo a quantitative risk analysis.

Quality - In project management, quality is a measure of a deliverable’s degree of excellence. Quality may also refer to a clearly defined set of stakeholder requirements by which results are assessed.

Quality assurance - A set of practices designed to monitor processes and provide confidence that result in deliverables meeting quality expectations. It may involve quality audits and the stipulated use of best practices.

Quality control - The use of standardized practices to ensure that deliverables meet stakeholder expectations. It involves not only the definition and identification of unacceptable results but also the management of processes to optimize results.

Quality management plan - A quality management plan identifies stakeholders’ quality expectations and details quality assurance and quality control policies to monitor results and meet these expectations. It is part of a project management plan.

Quality planning - Quality planning involves identifying expected quality standards and creating mechanisms to ensure these standards are met. It may also recommend corrective action if quality standards are not being met.

Quality, cost, delivery (QCD) - QCD is an approach to management that focuses on assessing production processes with regard to three aspects: quality, cost, and delivery. It seeks to simplify process management and facilitate decision making by providing objective information about each of the three aspects, with an understanding that modifications to any one aspect will also affect the others.

Quantitative risk analysis - The mathematical analysis of risk probability and impact. In project management, it is not a substitute for qualitative risk analysis. Instead, quantitative analysis is conducted after qualitative analysis and assesses risks that qualitative analysis has identified as significant.

R - Project Management Terms

RAID log - RAID is an acronym for risks, assumptions, issues, and dependencies. The RAID log is a project management tool that records developments in these four aspects of project work for the stakeholders’ benefit and for an end-of-project review.

RASCI/RACI chart - A RASCI chart is created during project initiation to identify those who are: responsible for project activities, accountable for ensuring that work is done, signing off on the work, consulted in relation to work activities, and informed about the status of the work. The acronym may be simplified as RACI . (See also responsibility assignment matrix )

Reengineering - Reengineering involves the extensive redesign or rethinking of core processes to achieve major performance improvements. It focuses on optimizing key performance areas such as quality and efficiency. Reengineering often involves restructuring organizations so that multi-functional teams can manage processes from start to end.

Release - In IT project management, a release is a fully functional software delivered to a customer as agreed, typically after a series of iterations.

Remote team - A remote team’s members work in collaboration, usually electronically, from different geographic locations.

Repeatable - The term repeatable is used to describe a sequence of activities that may be easily and efficiently replicated. Repeatable processes are economical since they typically avoid negative variances and have established operations.

Request for proposal - A formal invitation for expressions of interest that is extended by an organization looking to procure goods or services. (See also invitation for bid )

Request for quotation - Upon receipt of proposals after issuing a request for proposal, an organization will issue a request for quotations to shortlisted proposers, asking for detailed cost estimations for specific goods or services.

Requirements management plan - A requirements management plan explains how project requirements will be defined, managed, and delivered. It is part of a project management plan and is used to guide project execution and control to adequately deliver requirements.

Requirements traceability matrix - A table that tracks requirements through the project life cycle and product testing. It is used to ensure that a project is able to deliver the stipulated requirements during the verification process.

Requirements - A set of stipulations regarding project deliverables. They are a key element of the project scope and explain in detail the stakeholders’ expectations for a project.

Residual risk - Any risks that have not or cannot be addressed by risk mitigation or risk avoidance procedures.

Resource allocation - The assigning and scheduling of resources for project-related activities, ideally in the most efficient manner possible. Resource allocation is typically handled by a project manager, though they may be overridden by a program manager if resources are to be shared between multiple projects. (See also allocation )

Resource availability - Resource availability indicates whether a specific resource is available for use at a given time.

Resource breakdown structure - A hierarchical list of resources needed for project work, classified by type and function.

Resource calendar - A resource calendar indicates resource availability, usually by shift, over a period of time.

Resource leveling - A technique that involves amending the project schedule to keep resource use below a set limit. It is used when it is important to impose limits on resource use. Resource leveling can affect a project’s critical path.

Resource loading profiles - Resource loading profiles indicate the number and type of personnel required to do project work over periods of time.

Resource optimization techniques - Resource optimization techniques seek to reconcile supplies and demands for resources. Depending on whether project duration or limiting resource use is prioritized, they can be used to amend activity start and finish dates in ways that do or do not affect a project’s critical path. (See also resource leveling and resource smoothing )

Resource smoothing - A technique that makes use of float when allocating resources so as not to affect total project duration. It is used when project time constraints are important. Resource leveling does not affect a project’s critical path.

Resource-Limited schedule - A resource-limited schedule has had its start and end dates adjusted based on the expected availability of resources.

Resources - The elements needed for a project to successfully meet its objectives. Examples of resources include equipment, staff, locations, facilities, and money.

Responsibility assignment matrix - A responsibility assignment matrix identifies those who are: responsible for project activities, accountable for ensuring that work is done, consulted about work activities, and informed about the work status. (See also RASCI/RACI chart)

Retainage - The sum of money withheld from a contract payment until completion of the contract according to terms.

Return on investment (ROI) - The expected financial gain of a project expressed as a percentage of total project investment. It is used to assess the overall profitability of a project.

Risk - The probability of occurrence of a specific event that affects the pursuit of objectives. Risks are not negative by definition. In project management, opportunities are also considered risks.

Risk acceptance - Risk acceptance involves acknowledging a risk and not taking preemptive action against it.

Risk appetite - The amount and type of risk an organization is willing to accept in anticipation of gains. It is not the same as risk tolerance, which is the amount of variation in performance measures that an organization is willing to accept.

Risk assessment - An activity that involves identifying possible risks to a project and examining how these risks, if they occur, would affect objectives.

Risk avoidance - Risk avoidance focuses on avoiding threats that can harm an organization, its projects, or assets. Unlike risk management, which is geared toward mitigating the impact of a negative event, risk avoidance seeks to address vulnerabilities and make sure those events do not occur.

Risk breakdown structure - A hierarchical model of all risks, arranged categorically.

Risk category - A set of risks grouped by cause.

Risk efficiency - A concept based on the idea of maximizing the return-to-risk ratio. It can do this in two ways: by minimizing exposure to risk for a given level of expected return or by seeking the highest possible expected return for a given level of risk.

Risk enhancement - Risk enhancement involves increasing the probability of an opportunity, or positive risk, occurring.

Risk exploitation - Risk exploitation focuses on ensuring that an opportunity, or positive risk, occurs.

Risk identification - The process of identifying and examining risks and their effects on project objectives.

Risk management - A subset of management strategies that deals with identifying and assessing risks and acting to reduce the likelihood or impact of negative risks. Risk managers seek to ensure that negative risks do not affect organizational or project objectives.

Risk mitigation - Risk mitigation involves decreasing the probability of a negative risk occurring, as well as protecting project objectives from a negative risk’s impact.

Risk monitoring and control - The risk monitoring and control process uses a risk management plan to identify risks and implement appropriate risk responses.

Risk owner - A risk owner is responsible for determining and enacting appropriate responses to a specific type of risk. (See also risk response owner )

Risk register - A risk register, or risk log, is a tool used to chronicle risky situations and risk responses as they arise.

Risk response owner - A risk owner monitors a specific type of risk and implements appropriate risk responses when necessary. (See also risk owner)

Risk response planning - Risk response planning is typically conducted after risk analyses to determine appropriate courses of action for risks is deemed significant.

Risk sharing - Risk sharing involves handing ownership of a positive risk to a third party who is typically specialized and better able to realize the opportunity.

Risk threshold - The level at which the likelihood or impact of a risk becomes significant enough that the risk manager deems a risk response necessary.

Risk tolerance - The level of variation in performance measures that an organization is willing to accept. It is not the same as risk appetite, which is the level and type of risk an organization is prepared to accept in anticipation of gains.

Risk transference - Risk transference involves handing ownership of risk to a third party who is typically specialized and better able to address the risk or to withstand its impact.

Risk trigger - An event that causes a risk to occur. A trigger can serve as a warning that a risk has occurred or is about to occur.

Rolling wave planning - A planning approach that focuses on in-depth detailing of work to be accomplished in the near term and progressively lower levels of detail for work scheduled farther in the future. It is based on the idea that work scheduled in the future is more subject to change and thus less worth planning in detail. Rolling wave planning only works for schedules with clearly defined iterations.

Root cause - The primary reason an event occurs.

Run book - A comprehensive catalog of information needed to conduct operations and to respond to any emergency situations that arise during operations. It typically details, step by step, all regular operational procedures and emergency responses.

S - Project Management Terms

S-Curve analysis - An s-curve tracks cumulative financial or labor costs. S-Curve analysis is used to compare a project’s cumulative costs at any given point with a cumulative cost baseline created during the planning phase. It allows project managers and sponsors to assess performance and progress.

Schedule - A comprehensive list of project activities and milestones in logical order, with start and finish dates for each component.

Schedule baseline - A schedule baseline is the original project schedule — approved by the project team, sponsor, and stakeholders — by which performance is assessed. Schedule baselines are generally inflexible, though alteration of a schedule baseline via a formal change control process may be allowed.

Schedule compression technique - A schedule compression technique speeds up projects without affecting scope by decreasing the duration of a project’s critical path. There are two main schedule compression techniques: crashing and fast tracking. (See also duration compression )

Schedule model - A logically arranged, time-based plan for project activities. It is used to create a project schedule.

Schedule model analysis - Schedule model analysis examines the project schedule created from a schedule model. It aims to optimize the schedule, usually via the use of scheduling software.

Schedule network analysis - Schedule network analysis uses a variety of techniques to identify early and late start and finish dates for project activities and thus to create project schedules.

Schedule performance index (SPI) - The ratio of earned value to planned value at a given point in time. It shows whether a project is running to schedule. An SPI lower than one indicates the project is behind schedule. An SPI higher than one indicates the project is ahead of schedule.

Schedule variance - Schedule variance is the difference between earned value and planned value at a given point in time.

Scientific management - Scientific management was an early attempt to bring scientific approaches to process management. Its earliest form was derived from a 1911 monograph by Frederick W. Taylor, who focused on increasing economic efficiency via the analysis and optimization of labor processes.

Scope - The scope of a project constitutes everything it is supposed to accomplish in order to be deemed successful.

Scope baseline - The set of requirements, expectations, and work packages approved as project deliverables. It is used to guide and assess project performance.

Scope change management - Scope change management deals with amendments to the scope as set in the scope baseline and project management plan. Since scope amendments typically affect cost and schedule estimates, scope change management involves revising estimates and adequately communicating these to stakeholders, as well as obtaining the resources necessary to fulfill new scope requirements.

Scope creep - Scope creep refers to gradual changes in project scope that occur without a formal scope change procedure. Scope creep is considered negative since unapproved changes in scope affect cost and schedule but do not allow complementary revisions to cost and schedule estimates.

Scrum - Scrum is an iterative development procedure used in software development projects. Scrum-based projects focus on prioritizing requirements and working towards a clear set of goals over a set time period, called a sprint. The development team thus works through the list of requirements over a number of sprints. Scrum-based projects usually do not have project manager. Instead, the project team meets daily for progress updates.

Secondary risk - A risk created by a risk response.

Security - Security in project management refers broadly to protecting humans, information, and resources from risk.

Six Sigma - An approach to process management that focuses on the near total elimination of product or service defects. It uses quality management methods to improve and optimize processes involved in the production of a product or service so that 99.99966 percent of process outcomes are defect-free.

Slack time - The length of time an activity's early start can be delayed without affecting project duration. (See also float )

Slip chart - A slip chart graphically compares predicted activity completion dates with originally planned completion dates.

Slippage - The negative variance between planned and actual activity completion dates. Slippage may also refer to the general tendency of a project to be delayed beyond planned completion dates.

Soft project - A soft project does not have a physical output.

Software engineering - Software engineering is generally defined as the use of engineering principles in software development. It systematically employs scientific and technological approaches in the design, operation, and modification of software.

Spiral life cycle - An IT system’s development model that aims to learn from experience by drawing from both iterative development and the waterfall model. It has four sequential phases: identification, design, construction, and evaluation and risk analysis. At the end of each life cycle, an iteration is assessed by the customer, and the spiral sequence begins again upon receipt of customer feedback. The spiral model is typically used in long-term projects or those where requirements are expected to vary, and customer feedback is to be incorporated in phases.

Sponsor - A sponsor has ultimate authority over a project. They provide high-level direction, approve project funding as well as deviations from cost and budget, and determine project scope. Sponsors are typically members of the senior management and are expected to provide high-level support for a project.

Sprint - In iterative project development, a sprint is a fixed unit of time during which the project typically passes through a complete development life cycle. A sprint is usually a few weeks long.

Stakeholder - In project management, a Stakeholder is any party with an interest in the successful completion of a project. More generally, the term refers to anyone who is affected by a project. (See also project stakeholder )

Standards - A standard prescribes a collection of standardized rules, guidelines, and characteristics requirements for processes or products that are approved by a recognized body. Standards are not by definition mandatory. They are adopted by consensus, although they may be enforced as a requirement for participation in certain markets.

Start-To-Finish - In a start-to-finish relationship, a successor activity cannot finish until a predecessor activity has started.

Start-To-Start - In a start-to-start relationship, a successor activity cannot start until a predecessor activity has started.

Statement of work (SoW) - A Statement of work is a comprehensive and detailed list of deliverables expected under a contract, with expected dates for each deliverable.

Steering committee - A steering committee provides high-level strategic guidance on a project. It typically comprises individuals from a number of stakeholder organizations and serves to provide consensus-based direction on projects with a large number or a diversity of stakeholders.

Story point - In sprint-based projects, a story point is a measure of the amount of work required to implement a particular user story. Assigning and totaling story points allows project teams to target a realistic number of user stories for action during an iteration or sprint.

Successor activity - In a schedule, a successor activity logically comes after and depends on an activity immediately preceding it.

Summary activity - In a network diagram, a summary activity combines a set of related activities and visually represents them as a single activity.

Sunk cost - A cost that cannot be recovered once spent.

Systems development life cycle (SDLC) - In systems engineering, the systems development life cycle is the process of creating, releasing, and maintaining an information system, which may comprise hardware, software, or both. The typical SDLC has six sequential phases: planning, analysis, design, implementation, testing, and maintenance.

Systems engineering - A field of engineering that applies principles of systems thinking to the development of complex systems. Since complex systems are more difficult to coordinate and make cohesive, systems engineering focuses on developing and optimizing systems as interactive wholes instead of sums of parts. As complex systems comprise both technical and human elements, systems engineering is, by nature, interdisciplinary.

T - Project Management Terms

Task - In project management, a task is a unit of work or activity needed for progress towards project goals. Typically, a task must be completed by a set deadline. Tasks may be further broken down into assignments or subtasks.

Task analysis - A task analysis details the actions or resources required to complete a task.

Testing - The testing phase involves assessment of the product developed so as to gauge quality and performance and to determine whether requirements have been met.

Theory of constraints - The theory of constraints explains that any process is limited from optimum performance by its weakest link or links, called constraints. The theory of constraints methodology involves identifying these weak links via a strategy called focusing and improving them until they no longer limit performance.

Threat - A negative risk that could adversely affect project objectives.

Three-point estimating - A superset of estimating techniques that use averages (or weighted averages) of most likely, optimistic, and pessimistic costs, and duration estimates to form final estimates.

Time and material contract - A time and material contract pays per unit of time and reimburses materials costs for contracted work.

Time chainage diagram - In project management, a time chainage diagram graphically represents scheduled activities for a hard project completed sequentially over a geographic distance, such as the construction of a motorway or the laying of a pipeline. It thus provides both a scheduled time and a relative geographic location for each activity.

Time limit - The time limit for a task is the window of time or deadline by which it must be completed.

Time-scaled network diagram - A network diagram is time scaled if the lengths of activities are drawn to scale to indicate their expected durations.

Timebox - Timeboxing is a project management strategy that prioritizes meeting deadlines over scope requirements. It involves assigning specific lengths of time, called timeboxes, to project activities. Project teams work to address as many requirements as possible within each timebox, proceeding to successor activities once the time limit has passed.

Timeline - A Timeline is a graphical, sequential representation of project activities.

To-Complete Performance Index (TCPI) - A project’s to-complete performance index is the cost performance it needs to achieve to be completed within budget. The TCPI is calculated as the ratio of work remaining to budget remaining.

Tolerance - The acceptable level of variance in project performance. The project sponsor is typically informed if tolerance levels are crossed.

Top-Down estimating - Top-Down estimating uses historical data from similar projects to compute time and cost estimates. (See also analogous estimating )

Total cost of ownership (TCO) - The total cost of ownership estimates the sum total of direct and indirect costs incurred in the purchase, operation, and maintenance of an asset through its life.

Total float - The length of time an activity can be delayed from its early start date without affecting the project end date.

Trigger condition - A condition that causes a risk to occur. Trigger conditions can serve as warning signs that risks have occurred or are about to occur. (See also risk trigger )

U, V, W, and X - Project Management Terms

Unified process - A unified process may refer to any one of a family of iterative software development process frameworks. Unified processes have four phases: inception, elaboration, construction, and transition. Each phase comprises a number of timeboxed iterations, which in turn involve a cycle of specifying requirements, analysis, design, implementation, and testing, with emphases on these shifting as the project team proceeds through iterations. Each iteration results in an improved version of the system called an increment.

Use case - In software development, a use case is a step-by-step list of actions that end users would take to achieve specific goals. Use cases facilitate end user-focused software testing.

User story - A project requirement stated in one sentence. It typically identifies users, real or hypothetical, what these users want from software, and why they want it. Project development teams prioritize user stories in each iteration by assigning story points

V life cycle - The V in V life cycle stands for verification and validation. It is a sequential software development process that matches a corresponding testing phase to each phase in the software development life cycle. During the verification phase, a project team works at increasingly granular levels of detail to identify requirements and design, and then builds the software. Validation proceeds in the opposite direction, as testers examine software components in turn before moving on to systems testing and finally checking that the project as a whole meets requirements.

Value engineering - Value engineering seeks to increase the functionality-to-cost ratio of a product by providing improved functionality at lower cost. Some applications of value engineering attract criticism, as manufacturers may decrease costs by using lower-quality components that decrease product lifespans.

Value for money ratio - In project management, the value for money ratio is expressed as the ratio of financial and other benefits to the resources expended in a project.

Value tree - A hierarchical model of the characteristics of a product or service that determine its value.

Variance analysis - The practice of investigating deviations between planned and actual performance.

Variance at completion (VAC) - A project’s variance at completion is the difference between its budget at completion and its estimate at completion.

Vertical slice - A performance indicator that demonstrates progress across all project components or performance areas at a given point in time.

Virtual design and construction (VDC) - A method  based on using technology in design and construction projects. It uses building information modeling (BIM) tools that focus on designable and manageable aspects of projects to create integrated models that predict project performance.

Virtual team - A virtual team comprises people from different organizations, locations, or hierarchies. It is not necessarily the same as a remote team, which is a group of people working together from different locations.

Waterfall model - The Waterfall model is a software development life cycle in which development phases are sequential, non-iterative, and do not overlap. It is typically reserved for small projects with straightforward, clearly defined requirements since a sequential development process makes it difficult to revisit the analysis and design phases once testing has begun. (See also linear sequential model )

Weighted milestone method - The weighted milestone method allows project managers to estimate earned value by splitting work packages into weighted segments. Each segment represents a portion of the budget value for the work package and ends with a milestone. When a segment milestone is classified as complete, a portion of the total work package value has been earned.

What-If scenario analysis - A simulation technique that allows project managers to determine and compare specific conditions’ effects on project schedules and objectives.

Wideband delphi - An estimation technique based on expert consensus. Each member of an estimation team uses a work breakdown structure to create anonymous estimates of the effort required to complete each project element or work package. The estimates are then reviewed as a group before the experts create new estimates, and the process is repeated for a number of rounds until a consensus is reached. (See also delphi technique )

Work - In project management, work is the amount of effort needed to complete a task.

Work authorization system - A formal procedure to ensure that project work is performed on time and in logical order.

Work breakdown structure (WBS) - A Work breakdown structure is a comprehensive, hierarchical model of the deliverables constituting the scope of a project. It details everything a project team is supposed to deliver and achieve. A work breakdown structure categorizes all project elements, or work packages, into a set of groups and may be used to form cost estimates.

Work breakdown structure dictionary - A document that details, describes, and provides scheduling information for every element of a work breakdown structure. It may be thought of as a dictionary-cum-schedule of work packages.

Work package - The work packages of a project are its lowest-level deliverables. They are detailed in a work breakdown structure dictionary.

Work stream - In project management, a work stream is a logically arranged series of activities that must be completed to pursue project objectives. The term typically refers to the full sequence of work activities from project initiation to project closure.

Workaround - A way to circumvent a problem which does not have a permanent solution or for which no adequate response was planned.

X-Bar control charts - An x-bar control chart includes two separate charts that display the means and sample ranges for a number of periodically gathered, same-size samples. The sampled data constitute some characteristic of a product or a process.

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IT Services

How to build a scalable IT budget

How much business could your business do without IT?

These days, “none” is far and away the most common answer.

Yet many organizations struggle with how to approach spending and budgeting related to IT. Information technology may be the backbone of a business, but it usually isn’t front and center in strategic discussions and high-level decision-making. And whatever spending is happening, the budgeting process underneath it often doesn’t scale well.

We know that IT budgets are growing: 57% of CIOs expected their IT budgets to increase last year. An effective IT budget is about more than just spending more money. It’s about spending that money wisely — and determining how much money should be spent on IT in the first place.

How often should an IT budget be evaluated?  

Many organizations with established IT budgeting procedures evaluate that budget yearly. 

Why yearly? Because the process can be lengthy, involving numerous stakeholders and significant amounts of documentation. And the larger your organization, the more complex this business process gets. It’s not uncommon for the evaluation process to take months, so it’s impractical to shorten the budget lifecycle.

For IT services firms supporting clients in the IT budget evaluation and creation process, a yearly cycle can prevent overburdening your team and allow you to stagger clients throughout the calendar year.

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Who should be involved in the process?   

Keeping the right stakeholders involved in the IT budgeting process helps ensure that the budget is holistic (covering everything necessary), realistic (within the company’s overall financial means), and well-managed (administered and allocated responsibly).

The personnel involved should include any of the following, where they exist:

Chief information officer (CIO)

Chief financial officer (CFO)

IT managers, IT directors, IT department heads

IT project managers and project leads

Representatives from major divisions/departments

If the organization has a project management office (PMO), that group should also play a role.

It’s worth noting that entities outside the CIO and IT domains play an increasing role in IT budgeting as the process gets democratized across lines of business. Teodora Siman, an IDC research manager , elaborates:

“We’re seeing more influence come from outside of IT, where the CIO orchestrates technology across the business, and [technology decisions] are a collaborative conversation with business leaders who are focused on outcomes and customer-centricity.”

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• Key items to include in an IT budget

Organizations differ in where certain expenses fall in the budget, but most IT budgets should include at least these five areas:

Physical employee equipment: IT money is used to purchase laptops, desktops, printers, phones, networking equipment, servers, and other hardware.

Staff salaries: Employees within the IT department or division are typically paid out of the IT budget

Cybersecurity, backup, and disaster recovery (DR): Preventive expenditures here help to hedge against disasters, natural or otherwise.

Infrastructure and maintenance: Money is allocated to repair and upgrade devices and infrastructure and to pay for ongoing IT infrastructure operational costs (internet access, cloud services, software licenses, etc.).

IT project management: IT project management costs that are not accounted for in your overall project management budget should appear here.

How to plan a budget that serves the future of the organization  

Planning an IT budget can be relatively simple for a startup or small professional services firm, a massive months-long process at an enterprise level, or anywhere in between.

Whatever the size and scope of your IT budget planning, we’ve boiled the process down to six key elements. Below, we’ll provide clear, concise planning tips to help you create an IT budget to propel your organization forward.

Assess the current landscape (internal and external)

One key strategy for planning is considering the context around your IT budget. Is business booming? Is your industry more broadly in flux? Are you growing (and if so, how quickly)? Or is this a year where it’s clear the purse strings need to tighten?

And what about the technology landscape? We aren’t necessarily seeing quantum leaps in computing power at the individual user or device level. But consider the capabilities of AI and machine learning to churn through data or for generative AI to enhance workflows and extend human capacity.

Any successful IT budget needs to be grounded in these realities. They inform how much is likely to be available and what sorts of changes that budget needs to accommodate.

Integrate business objectives and cross-department goals

Next, remember that your IT budget isn’t an island or a destination. It’s a way to achieve goals and objectives. So make sure your budget doesn’t live in a silo. Instead, it should be built atop existing business objectives and priorities. 

Including business objectives and cross-departmental goals in budget planning ensures that your IT division is growing with, not against, the broader organization. By building your IT budget around the business’s core objectives, you can avoid unnecessary spending on IT projects that don’t further the mission.

This improves the organization’s financial health, affects employee morale and effectiveness, and can even advance market competitiveness. 

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Set clear guidelines for expense categories

One principle is consistent for any kind of budgeting: the more clarity, the better.

It’d be preposterous to lump your entire IT budget into a single line item: you need to know where the money’s going more specifically than that. But true clarity requires more than a few vague expense categories. You’ll need to get as specific as possible and set clear guidelines with team members on what expenses go where.

With clearer and more numerous expense categories, it will be easier to understand IT spend after the fact, helping you create progressively more accurate IT budgets year after year.

Consider flexible purchase options

IT costs can be inconsistent and spiky: it’s easy enough to plan for an upgrade cycle on PCs for your workforce, but the cost of replacing a server is a different beast. Big technology investments are sometimes needed, and the larger your organization scales, the more unwieldy these IT expenditures can become.

So, as you plan your IT budget, consider flexible purchasing options for your IT investments, including fair market value leases, consumption-based billing, and installment payment agreements.

This is one reason so many organizations are turning to the cloud: procuring your computing and software needs from a cloud provider tends to flatten out these spikes. Managed IT service providers can provide a similar cost-leveling function, and in the right situations, this business model can deliver notable cost savings alongside better IT support and the broad expertise needed to meet diverse IT needs.

Use KPIs to monitor effectiveness

Next, make sure to track the effectiveness of your IT budget processes by tracking the right metrics. Key performance indicators (KPIs) can help here, but the trick is finding the KPIs that deliver the right information in the right way.

For example, IT project team efficiency , on-time project completion percentage, average hardware age, software utilization rate, and a few dozen other measures could all be helpful — but not all are helpful all the time. 

Which KPIs are right for monitoring budget effectiveness depends on what your business is trying to achieve. Cost savings, increased efficiency, greater accuracy, and better customer responsiveness are all fantastic priorities, but they may compete against one another in some ways. 

So first, you must establish which priorities take precedence. Only then can you select the KPIs to help you measure progress on those priorities. 

Educate stakeholders about IT spending

Last, make sure you continually educate stakeholders in the IT budget about how spending works in IT. You’ll be working with people across a spectrum of specialties and skill sets, and not everyone will be a financial or IT expert. 

It’s up to you to invest in these stakeholders. By teaching them about the mechanisms for IT spending (such as those flexible purchase options), your budgetary goals, and the tools you’ll use to measure success, you’ll garner better support and get more useful feedback.

Manage your IT projects and budgets effectively with Teamwork.com 

For a successful overall IT strategy, businesses and IT leaders must prioritize the IT initiatives that best fit a company’s business goals and strategic needs — while staying within appropriate levels of IT spending.

Because while digital transformation is key to continued growth, it’s neither easy nor inexpensive.

For most professional services firms, managing IT projects and budgets well requires understanding and adhering to the business’s strategic plan and creating a technology roadmap that supports the overall business strategy. It also demands the ability to plan, visualize, strategize, organize, and ultimately execute projects well.

Teamwork.com is project management software that’s perfect for IT project management — including IT budgeting projects.

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TABLE OF CONTENTS

• How often should an IT budget be evaluated?
• Who should be involved in the process?
• How to plan a budget that serves the future of the organization

Ben is a Senior Content Marketing Specialist at Teamwork.com. Having held content roles at agencies and SaaS companies for the past 8 years, Ben loves writing about the latest tech trends and work hacks in the agency space.

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6 tips for managing your software development budget

May 16, 2024

Managing your software development budget can be one of the more challenging aspects of a project. But it’s also essential to get it right.

If you overestimate the budget, you misallocate resources that could be better used elsewhere. But if you pitch it too low, you might not have the funds available to deliver on the original vision, which can lead to cut corners and poor outcomes.

In this article, we’ll run through six useful tips that will help you craft and manage your budget effectively.

What are typically the biggest costs?

Before getting started on a software development project, it’s vital to draw up a realistic budget . Understanding what this should include is fundamental to eventual success. If core cost drivers are left out, you can quickly find yourself in a situation where the available funds simply aren’t sufficient to deliver the project on time .

The biggest single cost in any software development budget is usually paying the development team. For an initial idea, you can use online resources to help you consider your labor costs. If you’re employing an in-house team to carry out the project, you need to factor employment uplift costs into the budget on top of the basic salary figure. This may include:

• Social security
• Employment taxes

Don’t forget to include the labor costs for everyone involved in the software development workflow , not just the developers writing code. It’s common for development projects to need the skills of other professionals, such as graphic designers or copywriters, for example.

Then there are the other costs. On top of labor, you may also need to consider project-specific costs such as:

• Equipment and infrastructure
• Software tools
• Integration
• Site overheads
• Data storage and transfer

Each project will be unique, so it’s crucial to establish which of these costs will feature before you begin.

Factors that influence a software development budget

Costs will also vary depending on a number of other factors. The most important ones to consider are:

Type of project

Software modification tends to involve more complex processes than developing a new product from scratch, so it can cost more. That’s largely because it may involve a certain amount of “if I wanted to go there, I wouldn’t start from here” complication, whereas you have full control over the approach to developing new software.

Length of project

The longer a project takes, the more likely secondary costs will rise. For instance, if team members leave and have to be replaced. Also, overheads might increase, or equipment may have to be upgraded or replaced. It all adds up.

Project management approach

Aiming to develop a minimum viable product (MVP) that incorporates only basic features and then adding more later on can save time and money. Full product builds will take longer and cost more.

Common challenges in budget management

There are a number of issues that can crop up during a development project, which can pose a challenge. These include:

Resource allocation

At the beginning, it’s not always clear how to allocate resources efficiently. Developers vary in their skill sets, and it’s crucial to keep an eye on progress so you can make changes if necessary.

Scope creep

If the project becomes more complex over time ( scope creep ), the initial budget might not be adequate.

Unrealistic deadlines

Proper planning at the outset is vital. Overly optimistic deadlines can throw the whole project (and the budget) into disarray. Accurate time and expense tracking is critical to identifying emerging issues before they turn into problems further down the line.

Tips for managing your software development budget

Projects vary in scale, complexity, and implementation, but managing the budget well is essential to successful delivery. Here are six tips to help you do just that.

1. Set a realistic budget

There are many factors to take into account when it comes to setting a budget that’s both comprehensive and realistic.

As we’ve already mentioned, the heaviest expense in most software development projects is the cost of labor. Estimating how much this will come to can be tricky, but you can use previous projects as a guide.

It’s good practice to build in some contingency as well since development projects have a way of presenting you with surprises as they proceed, some of which can add considerably to the completion time.

Building a budget can quickly become a complex affair, so it’s worth investing in professional services software . This will give you a consolidated view of all your costs and multi-dimensional insights, making it easier to plan and set a realistic budget that includes all project expenses.

2. Prioritize features and requirements

Of course, you can’t create an accurate budget forecast without determining exactly what features you’re planning to include in the software. Meet with stakeholders to establish their requirements. Good questions to ask include:

• Which type of solution? (e.g., app, PWA, enterprise platform)
• Who will be using the software?
• What will it be used for?
• Which integrations will it need?
• Do you have specific design or layout requirements?

The goal is to make sure you have as complete a picture as possible of what you’re setting out to achieve with the software. Agree on how features should be prioritized. List a set of basic features that are essential, and then rank additional ones in order of importance.

3. Utilize third-party and open-source providers

You can often cut costs without sacrificing quality using third-party providers or incorporating open-source resources.

According to Arc, you can reduce your total labor costs by nearly 50% by hiring freelancers rather than using in-house teams. Now, this may not be possible for all projects. Certainly, if the project is commercially sensitive, it will often be better to keep it in the family, so to speak. But for many projects, hiring skilled contractors is definitely an option worth exploring.

Similarly, you may not need to develop every aspect of the project from scratch. Make full use of any available open-source plugins and other pre-built software modules. Doing this will help streamline workflows and reduce the amount of time needed to complete the project.

4. Monitor and control costs

Controlling costs is crucial in any business project to prevent them from spiraling out of control. This requires constant monitoring.

As part of your initial project preparations, you should create a timeline . Break down the project into its constituent parts and estimate how long each will take. That way, you’ll be able to keep a handle on how closely you’re sticking to the budget over time.

For tracking purposes, you can integrate whatever project management platform you’re using with a business accounting solution. It’s best to opt for dedicated business software for SaaS or similar development teams because they’re built with configurable integration functionalities.

By using a tailor-made business software solution, you’ll be able to monitor all your project data on one centralized system and utilize features such as subscription billing models or SaaS metrics, to create accurate forecasts that fit your project. 

5. Encourage effective communication and collaboration

Optimizing your budget means making sure all workflows run as smoothly as possible, and that takes good communication. When information flows freely, everyone on the project stays up to date with recent developments, and the risk of errors cropping up is reduced. And when an issue does arise, you can resolve it quickly, minimizing any potential hit to the budget.

To help with this, make sure you’re using the right communication tools for your project. For example, if you hire freelancers or work with external partners, consider a communication platform that facilitates easy collaboration across all teams.

Fostering team collaboration is essential. It won’t necessarily emerge organically, so be sure to encourage regular communication via some combination of:

• A dedicated project management platform
• Regular team check-ins
• Knowledge-sharing channels
• Centralized resources repository
• Comprehensive documentation

Having these factors in place makes team cohesiveness much more achievable. And when your team is working together like a well-oiled machine, that helps the project stay on track and on budget.

6. Invest in training and development

Putting the focus on delivering one project at a time can lead to deprioritizing certain critical elements of successful software development. But one area where it’s crucial to take a long-term approach is training and development.

There are several reasons why putting an emphasis on regular training represents a good investment:

Encourages best practice: when everyone in the team follows the same protocols, it helps streamline workflows and enable good communication.

Incentivizes top talent: the best professionals will always have a choice about who to work for. Retaining top talent is much easier if they know you value them enough to provide ongoing training.

Improves team flexibility: broadening and deepening the skill sets of each individual strengthens the team as a whole and gives you more flexibility when assigning work.

Overall, putting an emphasis on upskilling will empower your teams and help them deliver the top-quality work you expect to see. 

Make sure to include a line for training in each project budget and carefully consider the cost of online training platforms . These can be vital when training and upskilling your teams as they allow you to build your own courses and monitor your employee’s progress.  

Final thoughts

Every software development project is unique. The budget you build for each one needs to take account of a broad range of different factors, and no two budgets will be the same.

That said, there are some universal best practices that are vital to follow. Being realistic from the outset is essential, as is building in sufficient contingency so that unexpected issues can still be accommodated within the existing financial framework.

Keeping a project on a budget can be a challenge. But the good news is that if you put the tips included in this article into practice, it’s one you’ll be ready to meet head-on.

David Appel is Global Head of the SaaS Vertical for the largest technology company on the London Stock Exchange, Sage. Over time as a Sales and GTM leader, his organizations have earned the business of >2,000 SaaS and Software companies, growing at 40%+/year. He previously ran Direct Sales at Bill.com, led NetSuite’s Software Vertical, and was part of IBM’s Corporate Development team.

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Project Budget Template for Excel

Get your Project Budget Template for Excel or open it in ProjectManager, the best way to manage your projects online.

A project budget contains the financial details of your project, including the estimates of all the project costs and the money you need to layout to lead a successful project, from resources to materials.

Monitor project expenses with this Excel budget template. It even includes color-coding to let you know when you’re in the red! The budget is the life’s blood of your project, so you need to monitor it accurately to avoid cost overruns. That’s where this project budgeting template comes in handy.

Or, better yet, build your project budget in ProjectManager. Set a budget at the creation of a project, estimate planned costs and enter actual costs as the project unfolds. Even incorporate labor rates for your team, so you can monitor resource costs during execution. Use the Gantt chart, Sheet view and dashboards to compare actual costs versus planned costs to make sure you deliver on budget. Get started with ProjectManager in minutes and start dynamically tracking your budget.

Why You Need a Project Budget Template

A project is made up of tasks that lead to the completion of a project or service. That process isn’t free. There are resources necessary, such as hiring a project team, possibly contracting vendors, maybe parts and a whole slew of other expenses that need to be paid and accounted for.

That’s where budget management comes in, during the project planning phase. It’s imperative that you calculate what the costs of these things will be as close as possible to create a realistic cost baseline, get the allocated funds and not go over budget, which could jeopardize the entire project.

That means your cost estimates have to be accurate, or as much so as you can make them. This project budget spreadsheet can help you do that.

There’s a lot of uncertainty in managing a project, which makes creating the budget plan difficult, but with a free Excel budget template you’re on solid ground to build a financial model that’s sound and able to do the job at hand.

Some of the project costs are easier to collect, such as:

• Labor costs
• Consultant fees
• Raw materials
• Software licences

Other project costs may change or carry from one project to the next, such as:

• Telephone charges
• Office space
• Office equipment
• General administration
• Company insurance

When you have downloaded and created your project budget template, there are all the fields necessary for you to get started on this pivotal project planning process. But without an expense tracking tool to collect all this data, you are starting off with a disadvantage. The budgeting process may seem like fuzzy math, and it’s certainly no exact science, but with the proper project budgeting software you can have a better handle on defining the financial constraints of your project. By doing so, you have given the project a better chance to succeed.

Besides budget templates, two such project management tools that can help you manage budgets are Gantt charts and dashboards. ProjectManager offers an award-winning Gantt chart feature that lets you apply costs directly to tasks. You can also assign labor costs to team members, and that potential cost is automatically calculated as you assign them tasks and work hours. Plus, as the project unfolds, our real-time dashboards can track project costs and compare them against your initial planned costs, so projects don’t even have to go over budget.

When To Use a Project Budget Template

Money makes the project happen, so it’s likely the costs will be discussed during project initiation. However, traditionally, budget management concerns begin to be addressed during the planning stage of a project.

You can’t figure out your budget without first knowing what it’s going to pay for. That’s why budgets are conceived as you start to plan and organize your project schedule. To make an accurate project schedule, you need to define the work that will be done and how long it will take. To do so, you can use a work breakdown structure (WBS) to identify all the project tasks. Those tasks depend on having the funds to pay for the resources needed to execute them.

Our free budget template is really a cost control mechanism to compare what it will cost to complete the project against what the project has been authorized to spend. Therefore, the budget spreadsheet template allows project managers to build their budget within the cost and time constraints of the project.

A project budget is defined by estimating costs for all the individual tasks that make up the project, including the resources needed to execute them. You’ll need those cost estimates to fill out your project budget Excel template. You can use our estimate template to make your estimates and share them with your stakeholders.

Who Should Use this Free Project Budget Template?

The buck stops with the project manager when it comes to overseeing every aspect of a project, which includes filling out and maintaining this free project budget template. They will work on the project budgeting activities, but not alone. In order to make more accurate cost estimates, project managers will seek guidance from those people on the project team who are involved in executing the project.

Once the project budget has been completed, the team will be released to focus on the tasks they’ve been assigned. The budget management will remain the purview of the project manager, but depending on the size of the organization, the day-to-day work might go to an administrator, such as a project coordinator or assistant project manager.

However, the project budget is also shared with stakeholders. They need to stay in the loop and often have change requests throughout the project that will directly impact the budget. Therefore, during stakeholder presentations, budgetary issues are usually part of the agenda, if only to determine if the project is not going over budget.

How to Use ProjectManager’s Project Budget Template for Excel

Your free Excel template is a blank slate and now you have to turn it into a useful tool. By filling in as much of the information requested in this project budgeting template as you can, you begin to get control over the financial aspect of your project. Let’s start.

Labor and Materials

This is the meat and potatoes of the project, and likely the most expensive aspect of the work you have to include in your project budget Excel template. To start with, you want to use a work breakdown structure to separate these into line items tagged to a specific task. This may seem like an unnecessary detail, but it’s not. Every dollar needs to be accounted for if you want to reign in costs, so the more exact you can be the better your expenses estimate will be and the closer your project will come in within budget.

Now that you’ve broken down your project into the small tasks that make it up using the work breakdown structure or WBS column, it’s time to assign a labor and material cost to each. This is the money you’re going to spend on assembling the team responsible for each task, the time they’ll take to complete it and the materials they’ll need for those tasks. It’s a lot of work, but by doing it before the project begins, you’ll save yourself headaches and over-expenditures.

Other Line Items

Of course, a project budget is not only labor and materials, even if that is the heavy lifting. It’s important to account for every dollar and cent, and those smaller items—and sometimes not-so-small items—are going to add up. Don’t let these costs break your budget: find them and then collect them on your free Excel project budget template.

Take travel, for example. Your project budgeting template needs a column in which you note when and if you have to travel, and then how much that will cost, including any stipend. Maybe travel doesn’t plan in your project, but you need to consider it. Better to have thought it through and dismissed it, than to have a cost come up in the midst of the project that you’ve not accounted for.

The same goes for equipment. You’re definitely going to have costs in this area. Equipment costs can vary from very expensive heavy equipment to minor ones, but you have to register those expenses in your project budget template in order to make an educated guess of what the project is going to cost.

Fixed Items

There are fixed items, too, and there’s a place for you to collect them on the free project budget template for Excel. A fixed budget item is one where the amount is set and doesn’t change, as in one that is the same amount every week or month. There’s also a column for miscellaneous costs, which are those that do not fit into any of the other categories on the downloaded project budget Excel template.

Planned v. Actual Budget

The last part of your free Excel project budget template is the columns that you’ll be most interested in following when tracking the project. It’s here that the spreadsheet calculates the planned budget against the actual one or the real money you’ve spent for that task. One column is your estimated budget expenditure and next to it is the money that really went to completing the work, followed by a third column in which your balance is noted. Here is where you can see if you’ve gone over- or under-budget.

How to Use a Project Budget Excel Template in ProjectManager

If you’re ready to move on from a static Excel budget template to a robust project management software, look no further than ProjectManager. It’s easy to transfer your data over from the Excel sheet into the software. All you need to do is start a new project and open up the Gantt chart project view.

Once you’ve started your project, you can transfer the info from your filled-out Project Budget template into the Gantt chart manually. The same rules apply – just type in the task names, the assignees, the planned hours, the project costs and so on.

Now that your project is filled out in ProjectManager, you can get to work tracking the costs as your project progresses. That’s because the budget is updated as team members complete tasks and update their status, giving you the most up-to-date information. Then you can look at the budget for the project or even many projects through the dashboard view . Think of it as an overview at-a-glance, but it’s also able to drill down deep into the detail you need when you need it.

What Other Project Management Templates Can Keep My Project on Budget?

The project budget template is a great tool to figure out how much your project will cost and make sure that number is within the approved funding for the project. However, there are other project management templates that can help you control costs and manage areas of the project that can impact your overall budget.

Timesheet Template

Use a timesheet template to keep track of your team’s time spent on their tasks, including cost per hour, vacation and overtime. Timesheets from past projects can help you estimate your project budget based on how much time was logged for tasks in the past. It also keeps an eye on your bottom line, showing how profitable your effort is and providing clues to add greater efficiencies.

Work Schedule Template

Another way to monitor your labor costs is with a work schedule template. This template lists your team and where they’re working, what time and what responsibilities they have over the week or month. This information is crucial to working more productively and managing costs. It helps you reduce resource costs, which makes your budget go further.

Risk Tracking Template

Risk is always on the horizon of a project, threatening to impact your budget. A risk tracking template collects those risks as you identify them and allows you to do a risk assessment to rank their priority and then track them as your team resolves the issue. Having a tool to manage risks as they arise in your project gives you the means to control them and the costs associated with those risks.

We have many other project management Excel templates that you can use to manage your projects.

Watch a Budget Tutorial Video

For more information on how to create and manage a project budget, watch the video below. Jennifer Bridges, PMP, gives you a number of crucial tips that can help you get the most out of your project budget template.

More Related Content

There’s more than a great software package available on the ProjectManager website. We regularly publish a blog with articles and videos on project management, leadership, and business concerns. Here are four that are relevant to project budgeting.

• Project Budget Proposal Template
• Project Documentation: 15 Essential Project Documents
• 7 Steps for a Successful Project Budget
• 6 Ways to Track Project Expenses
• Keeping Projects Under Budget
• 7 Tips for Preventing Cost Overrun on Projects

If you want to take your project to the next level, then you’ll want to work with project management software that has the tools to plan, monitor, and report on your project in real-time. Our free budgeting template helps with budget management and expense tracking, but our Gantt charts and dashboards are superior budgeting tools that automate the budget planning process and offer you many more project management features. See for yourself by taking advantage of our free 30-day trial offer.

Start your free 30-day trial

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VITARA Reference Guide: Reform Management Fundamentals

Publication Date:

May 13, 2024

Electronic Access:

Free Download . Use the free Adobe Acrobat Reader to view this PDF file

This guide is part of a series of Virtual Training to Advance Revenue Administration (VITARA) reference guides that has been developed based on the contents of the VITARA online modules. This reference guide focuses on tax administration reform programs. It explains why reforms are important for tax administrations, and how a tax administration can successfully plan and manage the reform process. It also details who should be involved in a reform, and what management and governance arrangements are needed to ensure reforms are delivered on time, within budget, and of acceptable quality. The guide provides practical guidance to project managers on how to prepare and execute a project plan, outlining the five key phases of a project and the planning documentation required. The guide succinctly presents proven management practices applied by tax administrations across the world in managing their reform programs.

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Expenditure Types

An expenditure type is a classification of cost that you assign to each expenditure item that you enter in Oracle Projects. Create expenditure types for processing requirements, such as calculating raw costs, to classify costs, and to plan, budget, forecast, and report on projects.

Following are examples of other ways that you can use expenditure types:

Assign an expenditure type to each burden cost code when capturing burden costs on separate, summarized expenditure items. The assigned expenditure type becomes the expenditure type for that type of burden cost.

Specify default expenditure types for each resource class for different project units. The application uses the default expenditure type for planning purposes. For example, when determining the raw and burdened cost rates for a planning resource, if the resource format doesn't contain an expenditure type or nonlabor resource, then the application uses the default expenditure type for the resource class of the resource to determine the rates.

Labor cost multipliers are used to calculate costs for overtime expenditure items. Associate a labor cost multiplier to an expenditure type with the Overtime expenditure type class. The costing process multiplies the standard labor cost rate by the multiplier and the hours to calculate the cost for overtime expenditure items.

Assign an expenditure type with the Usages expenditure type class to each nonlabor resource to define nonlabor resources that are used to record usage transactions.

Expenditure types contain the following attributes.

Expenditure and revenue categories

Unit of measure

Rate required

Proceeds of sale

Expenditure type classes

Assigned sets

Tax classification codes

If you create and save an expenditure type, you can't subsequently update the following attributes for the expenditure type.

Rate required option

Instead, you must enter an end date for the expenditure type and create a new one. The end date for an expenditure type has no effect on existing transactions. Oracle Fusion Projects uses the old expenditure type to report on and process existing transactions.

Expenditure and Revenue Category

Expenditure categories group expenditure types for costing. Revenue categories group expenditure types for revenue and billing.

Unit of Measure

The expenditure type unit of measure is used as the default value on costing or planning transactions.

For inventory transactions, the primary unit of measure is from the inventory item, and not from the expenditure type on the transaction.

You must use Hours as the unit of measure for labor expenditure types.

Rate Required Option

Enable the Rate Required option for an expenditure type that requires a cost rate.

Proceeds of Sale Option

Enable the Proceeds of Sale option for expenditure types that are used to track the proceeds of sale for a capital project.

Expenditure Type Classes

Expenditure type classes specify how an expenditure item is processed. For example, if you assign the Straight Time expenditure type class to an expenditure type, Oracle Fusion Projects uses labor cost schedules to calculate the cost of an expenditure item with that expenditure type and expenditure type class.

You can assign multiple expenditure type classes to an expenditure type. For example, an expenditure with the expenditure type Materials can have the expenditure type class Supplier Invoice if it originated in Oracle Fusion Payables, and the expenditure type class Inventory if it originated in Oracle Fusion Inventory. This lets you use a single expenditure type to classify as many costs as you need. You can use the same expenditure type for expenditures with different origins, and therefore different accounting, that should otherwise be grouped together for costing, budgeting, or summarization purposes.

Assigned Sets

You must assign at least one project transaction type set to each expenditure type. You can add and delete set assignments for an expenditure type at any time, except that you can't delete the last set assignment for an expenditure type.

Tax Classification Codes

You can optionally select a default tax classification code to use for customer invoice lines for an expenditure type and business unit.

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