Speaker 1: Hey guys, this is Eric from Invencys, and I welcome you to our YouTube channel. In today's session, we will talk about how to create a successful project budget. Before we get started, I would like to address the agenda for today's session. So, we will start our session by first understanding why there is a need for project budget and what is it? Then we will look at the things to consider while making a project budget and also at the creation process of it. Moving ahead, we will understand the different approaches that can be taken for estimating a project budget. Finally, we will wrap up this session by going through the steps to create a successful project budget. If you like this video, do subscribe to our YouTube channel. Also, to learn more about project management and its practices, check out Invencys Learning's Project Management Certification Training on PRINCE2, Project Management Fundamentals, PO, and MSB. All the necessary information is given in the description box below. So let's start with the first topic. Why does one need a project budget? First, it's an important part for securing the project funding. The figures will show stakeholders how much money is required to complete the project and when it is required. Second, a well-thought-out budget serves as the foundation for project cost control. An end-budget estimate allows you to compare the project's real cost to the approved budget and determine how much money you've already spent. In addition, it will show you how the project is progressing and whether any adjustments to the plan are necessary. Third, the financial viability of a corporation is directly affected by a project budget. When a project budget is set properly and with resource limits in mind, a project budget will boost the operating margin and improve overall project success. Before we get into the specifics of generating a project budget, let's first define what a project budget is. Project budget is nothing but the total cost of all activities, tasks, and milestones that the project must complete. In a nutshell, it's the entire amount of money you'll need to complete the project, which all stakeholders must approve. A project budget is the entire estimated expenditures for completing a project over a certain time period. It's used to estimate how much the project will cost at each stage. You begin developing a project budget during the kick-off phase of a project and continue to manage it until the project is completed. When seamless and sustainable growth is vital to corporate survival in the modern service economy, a precisely calculated project budget is the holy grail. Now that we understand what a project budget is, let's now understand the things to consider for making a project budget. Like a business budget, every project budget plan has a few considerations to think about before you start putting together the budget itself. The most important are listed below. Cost Estimates In project management, a budget includes various costs, including direct and indirect costs, actual expenditures and operational expenses, costs associated with project deliverables, and so on. Trying to precisely record the numbers, especially for an effort you've never done before, can get confusing and drive you insane. So how can you calculate the unquantifiable costs? Remember that you're merely estimating to keep your sanity. Budget numbers rarely match up with actuals, and they are likely to vary as a project progresses. So concentrate on doing your best to capture a project's resource requirements accurately and to be as realistic as possible with expense estimates without being overly conservative, to avoid going over budget. Budget Contingency The unknown is the most difficult aspect of project management budget planning. Unexpected delays or changes in the project may necessitate budget amendments, even with a comprehensive forecast of costs and resources. As a result, just as a project plan has some wiggle room in its timetables, it's a good idea to set aside an emergency budget for the unexpected. This is known as contingency. It's difficult to estimate because it's money for the unknown. Those who must sign off on the budget will perceive it as inflated if it is too great. Setting aside 10% of the entire budget for contingencies is a solid rule of thumb. The project benefits by coming in under budget if you finish the project with little need to draw into the contingency reserve. Budget Monitoring You should manage and monitor expenditures throughout the project, just as you would project activities. Project budget management guarantees that the project stays on track. You can immediately detect if costs begin to exceed predictions and make modifications before the budget is blown by frequently reviewing the budget during the life of a project. This monitoring also indicates additional budget requirements with sufficient lead time to secure the funds before halted production. Moving ahead, let's now understand the creation process for the project budget. The first step is to identify the project scope. The planning phase of project management process groups includes the preparation of a project budget. The procedure to create your own project budget is outlined here. Before figuring out how much our project will cost, we must first figure out the scope, timeframes, and deliverables. For example, if a large project is to be completed in a short period, you will almost certainly want staffing assistance. As a result, budgeting in project management requires a well-defined project plan. Building a Work Breakdown Structure, WBS, for the project is a good idea. The Work Breakdown Structure allows you to capture all of the efforts to complete a project in great detail. From there, determining the resource requirements for budgeting becomes much easier. The second step is to define resources. After you've figured out what a project entails, you can start piecing together the budget. This entails figuring out how much money is needed to finish a project. In our experience launching software products for numerous firms, we've seen many project budgets include the same four ingredients, plus a fifth for extraneous goods depending on the project's type. We have broken down these aspects for you to think about. Staffing, it is the most important and costly cost. Is there a need for more team members on your project? If that's the case, how many and for how long? If the new employees are paid by the hour, the duration of time should be expressed in hours. Equipment, it might be in the form of machinery, such as an excavator, or it can be in the form of tools, such as project management software, for a construction project. What tools will you need for your project? Include this on your budgeting list. Sales and marketing, your project's nature may need sales and marketing expenses. When releasing a new product, for example, an advertising budget is required. Some projects may not require sales or marketing expenses, but if they do, make sure to account for sales commissions. Training, when a project is started, organizational change management is normally implemented. Change necessitates education. The higher the training investment, the more extensive the change. Miscellaneous items, another set of project cost factors is specific to your project requirements. A budget should also improve travel charges if you travel for the project. Outside companies' fees must be accounted for if they are used. Make a list of all the personnel and materials you'll need to do the job on time. Then align the project's resource requirements with what you already have on hand. If there is a hole, it reflects the breadth of things that will necessitate more spending. From there, the determination of the budget can be done. Step 3 is to assign the amounts. It's time to assign amounts now that you know how much a project will require in terms of resources. Then, begin calculating the expenses of each resource in the list. Calculating money numbers might be difficult, this is where research comes in. Examine previous budgets for projects that are similar to yours. Conduct internet research or speak with team members who hold knowledge about the project's numerous items and associated prices. It's vital to model expenses for some resources. This is especially true in the case of staffing when compensation differs from person to person and time is a concern. As a result, using an average wage or industry standards for the occupations, it's effective to develop a model and project management software or a spreadsheet to predict staffing costs across the project's lifetime. The fourth step is to build your budget. You'll have your estimations once you've gone through the list of resources needed for the project and given amounts. Remember to account for a contingency fund in your budget. Then, assemble these estimates in your project management software or whatever tool your firm employs for this. It's good to arrange relevant items together in a spreadsheet or other freeform application. All training-related line items, such as printing expenditures for training materials, should, for example, be grouped under a training bucket. Make a note of any assumptions that went into the calculations to develop your budget. This is crucial because once a project starts, some assumptions may hold true while others may not, causing real project spending to differ from the budget. You'll understand why the budget didn't match reality if you capture the assumptions. If the budget covers a long period, usually more than a month, provide a timetable as well. This makes it possible to identify any recurrent costs in the budget. It also assists you in determining when certain charges will occur. Finally, solicit comments on the budget from other project teammates. Then, another set of eyes on the budget can see any missing items and double-check the figures. This also aids you in avoiding budget errors before requesting authorization. The fifth step is to obtain approvals and implement them. Prepare to justify the items and quantities when you deliver your project budget to stakeholders or other company leaders who must approve it. This is the time to emphasize crucial assumptions and other justifications, such as the staffing model. It is one of the project manager's tasks to oversee the budget once it has been approved. To keep track of costs, it's a good idea to use project management software. If teammates fall behind on deliveries or unforeseen delays occur, costs will be influenced, as the project management triangle dictates. You must have visibility into your present cost to compensate or request an enhanced budget based on a sound explanation and a strategy for cost containment. So this was all about the creation process of the project budget. Now let's move ahead to understand the different approaches to estimate the project budget. We all know that estimating the size and expense of a project may be difficult because a project is, by definition, unique, frequently including a new product, service, or company shift. The larger and more intricate the project, the more difficult it will be to complete it properly. Here are five approaches that can considerably increase the accuracy and efficiency of project estimation. So the first approach is bottom-up estimation. Bottom-up estimating is a tried-and-true method of preparing a project budget. It anticipates estimating specific project components, such as tasks, milestones, or stages and adding them together to arrive at a final project cost. If you're in the process of writing a statement of work, this strategy can help. Bottom-up estimation is the way to go if you're confident you understand every project detail. The disadvantage of the bottom-up technique is that getting down to the tiniest aspect of a project takes a long time. Furthermore, according to our internal study, 71% of tasks are produced after the project start date. As a result, project needs can alter even before the ink on your statement of work has dried. Also, because it's so granular, you can experience inflation affecting the cost of your estimations at some point. Because project estimating is a process, it will always go through numerous iterations of refinement throughout the project's life cycle. As the project scope is better known, the estimating accuracy will improve. This also means that as the project nears completion, the level of uncertainty will decrease. Second approach is top-down estimation. Top-down estimating is the polar opposite of the previously mentioned bottom-up strategy, and it's a whole other game. It begins with the whole project budget and breaks it down into smaller portions. A top-down estimate is often used when you have a fixed-price project with a specified budget. The biggest downside of this strategy is that it leads to erroneous estimates during the project's initial stages. This is because it's difficult to accurately predict the budget before you understand the scope of work and have a project plan. This process may become difficult, especially if you cannot compare the accuracy of the initial quote to the final project delivery. A top-down approach can lead to a mismatch between the sales and project teams. Consider the case below. With top-down estimation, the key to success is clearly understanding how each work in the scope affects the initially established fixed price, which might take a long time to calculate manually. Forecast, on the other hand, makes things quite simple. The platform's baseline may be used for top-down planning and bottom-up predictions. You'll notice that there's no way to match the price to the expectations early on. Third approach is analogous estimation. If you're not completely new to project management, you've probably already overseen a few projects and know what works and what doesn't. Using comparable estimates, you'd base your estimate on budget data and best practices from previous projects to determine how much the new project may cost the client. Analogous estimation can be a back-and-forth process, but instead of doing it the hard way, why not do it the smart way with project management software? For example, you may easily copy one of your previous projects in Forecast to create a new one with the same tasks. Then you may alter it instantly to get a better, more situational estimate. Another option for equivalent estimation is to utilize AutoSchedule, which features an algorithm that learns from previous projects and can be used to estimate tasks, anticipate delivery dates, and calculate project costs. There will always be parallels across projects, but that does not mean you should make judgments purely based on those similarities. Each project is distinct. A short search will usually yield useful examples if you've never managed a project before. Analogous estimating is not as accurate as other strategies such as bottom-up estimation. But, on the other hand, analogous estimating has the advantage of being extremely quick and is especially beneficial when there is limited information about the project. Fourth approach is parametric estimation. The parametric technique is more accurate than comparable estimation. In addition, it applies cost variables or data points from specific areas of specific projects to the current project, allowing you to make better data-driven decisions. This technique is more accurate than similar estimation because it involves more than one data set and exploits the statistical link between historical data and variables. The negative is that it's typically difficult to identify useful data points for digital initiatives. Fifth and the last approach is three-point estimation. This is one of the most practical and sensible strategies. It uses a weighted average of the best, worst, and most likely case budget scenarios and encourages you to think from many angles. As a result, you can come up with a reasonable cost estimate. The advantage of the three-point estimating technique is that it reduces the chance of going over budget, as stated in your plan, and allows you to meet expectations in the end. The three-point estimate has no significant downsides. It may take a little longer to construct a budget using this method, but it's well worth the time and work. Now let's finally understand the steps to create a successful project budget. For satisfying the needs of a project, the project's budget must be meticulously developed, and you must also keep track of all areas of the project to ensure that nothing goes ignored that requires money. To create the perfect budget, here are seven different steps that you can use. The first one is the use of previous data history. Your project will not be the first or last in the market to attempt to achieve a given milestone or goal. This is why, before beginning any work on the project, you should review all of the successful projects and their budgets that have recently come to market. This will assist you in determining how to set a budget for your project effectively. The second step is to use the acquired knowledge. You can learn a lot from these past projects and their finances to help your cause. Why? Because they will inform you of their achievements and failures. This will also give you a very exact assessment of your budget and how you should change it in order to be successful. The third step is to contact the experts. There are bound to be some mystic gurus of that specific field in the market, no matter what the issue or topic. These people have been in the field for a long and are battle-hardened. So if you want to construct a good budget, you need to contact these experts and learn all of the methods. The fourth step is, confirm accuracy. After you've completed that long-awaited budget sheet, double-check that all of the statistical data in it is right. The sooner you can verify this, the better because you can't afford a typo or any other mistake in the document during the development process, as it could lead to a fatality in the long run. The fifth step is to keep your budget dynamic. When you begin to make your idea a reality, you create a precedent for yourself with the initial draft of your budget. But don't make the mistake of viewing this initial draft as a static, unchanging object in your thoughts. The company's needs and requirements will change from time to time, as is the budget for all foregoing restraints. As a result, when it comes time to adjust the budget, make sure you account for all of the project's modifications. The sixth step is to update the budget in real-time. When it comes to budget changes, make sure you keep your entire team up-to-date on all of them in real-time. This will ensure that the team does not make errors while updating the project's status due to erroneous information. The seventh and last step is to, get on track. When conducting any job, keeping everything on track is something you'll always require in the project management paradigm. What do you mean by that? You'll need some software for that, and one of the best. Try nTask if you're not already utilizing project management software for all of your PM needs. It's one of the greatest project management software programs on the market right now, capable of handling any project management task you throw at it. And with this, we have come to the end of this video. I hope it was helpful. If this has spiked your interest and you want to know more about project management, I recommend you to opt for PMP certification training and clear the exam. At InvenCIS Learning, we provide various PMP certifications that will pave the way for your career in project management. We are accredited by respective governing bodies or courses in line with their guidelines for each of these certifications. Post-enrollment, you will get lifetime access to a personalized learning management system. LMS has all the class recordings, live class, webinar links along with assignments and case studies to practice. All classes are live instructor-led delivered by trainers with rich domain experience. Thank you guys. See you in the next session.