Project Budget

Quick reference

• 00:00 Hello, I'm Ray Sheen.
• 00:00 Let's talk about planning the resource portion of your project.
• 00:01 In particular, let's
• 00:06 discuss the project budget.
• 00:11 The project management body of knowledge, the PMBOk Guide,
• 00:15 defines the budget as, the approved estimate for the project or
• 00:19 any work breakdown structure component or any scheduled activity.
• 00:24 What that really means is that the budget tells us how much money we intend to spend
• 00:28 on this project.
• 00:29 The budget is normally shown as a time based spreadsheet of the planned project
• 00:34 spending where each column is a time interval such as a week or a month.
• 00:38 And each row is a project task or category of tasks, such as all travel expenses.
• 00:44 We can assign the cost for a task in the project column and
• 00:48 row based upon the project schedule and the task estimates.
• 00:52 We can then sum up all the costs within a given column to get the estimate for
• 00:57 the amount of money to be spent at that time.
• 00:59 And we can sum up the entire spreadsheet for the total project estimated cost.
• 01:04 Make sure that you include all project activities that will be charged as
• 01:08 a project expense, including personnel costs, purchasing costs, and
• 01:13 any applicable business overhead costs.
• 01:16 Once you get these estimated costs entered into the spreadsheet,
• 01:19 you can create a time phase cost summary for the entire project.
• 01:23 You can then show what the cumulative spending would be at any point in
• 01:27 the project.
• 01:28 Let's now look at the steps involved in creating a project budget.
• 01:31 It really isn't very hard.
• 01:33 First, list all the project activities are to be accomplished on the project on
• 01:37 the left side of the spreadsheet.
• 01:39 Second, estimate the amount of effort for each activity.
• 01:42 Typically, for work done by people on my team,
• 01:44 I will get their estimate and the number of labor hours.
• 01:48 For work done outside the team, I use bids or quotes.
• 01:52 Third, convert the estimates into an amount of money in the appropriate
• 01:56 currency.
• 01:56 I use the labor rates for team effort to create that amount.
• 01:59 For purchased items, I use the supplier quote.
• 02:02 Now I allocated that estimated amount of cost to a time
• 02:06 column based upon when the project schedule has the work being done.
• 02:10 If the work spans multiple time columns, I spread the estimated cost between them.
• 02:15 Finally, let the spreadsheet add up each column to determine how much money is
• 02:20 required in each time period.
• 02:22 I also create a cumulative sum, which is the total of all the money that
• 02:26 the project is estimated to spend from start until finish.
• 02:30 If it is a long project, you will need to separate that value by fiscal year.
• 02:35 Perhaps the best thing to do is to show you an example.
• 02:39 This is a project budget spreadsheet, each row is a project task and
• 02:43 each column is a month.
• 02:45 On the far left is listed all the project activities.
• 02:48 Next to those activities, I have the estimates for the work of that activity.
• 02:53 In this case, the estimates are expense dollars and investment dollars.
• 02:57 Use whatever your organization requires for creating estimates and tracking costs.
• 03:02 I spread those estimates into the appropriate monthly columns based upon
• 03:06 the project schedule.
• 03:07 At the bottom, I add the total amount of money to be spent in each monthly period.
• 03:13 Finally, I calculate the cumulative estimated amount of money for
• 03:17 any point in time in the project by adding up all of the preceded monthly columns.
• 03:22 I hope that clears it up.
• 03:24 Let's talk about several special cases associated with project budgeting.
• 03:28 One special case is determining which column to put the cost for
• 03:32 purchased items.
• 03:33 Depending upon your financial system, that might be the date when the purchase
• 03:38 order will be placed, the date that the goods or services will be received,
• 03:42 or the date that the supplier will be paid.
• 03:45 Check with your finance person to determine how your organization
• 03:50 records the date.
• 03:51 The second special case is how we estimate the cost of an activity that spans several
• 03:56 time periods.
• 03:57 The two methods normally used are either to spread that
• 04:00 cost evenly across all those time periods, known as level loading.
• 04:04 Or to allocate the cost based upon detailed task planning of mini
• 04:09 milestones or events within the task.
• 04:12 For example,
• 04:13 if I have a task that requires one of my team members to work full time on it for
• 04:17 three months, I will spread that estimated labor cost evenly across all three months.
• 04:23 But if a part of the task includes attending a conference in another country,
• 04:27 I would put the estimated conference fees and
• 04:29 travel costs only in the month in which the conference occurs.
• 04:33 The third special case is how to plan your budget reserve.
• 04:37 Some businesses expect all project plans to have a reserve.
• 04:41 Other businesses will not allow it.
• 04:43 If you have a reserve account, I recommend that you time phase it,
• 04:47 applying some of the reserve to each phase,
• 04:50 with the riskiest phase getting the largest portion.
• 04:53 If you do not have a reserve account,
• 04:56 consider inserting reserve tasks and estimated costs for those.
• 05:01 Reserve tasks are prepositioned risk response.
• 05:04 For example, a software development project has a task titled bug fixing.
• 05:09 They don't intentionally put bugs into the code just so they can fix them.
• 05:13 Rather they know software development is risky, so
• 05:16 they create a risk response task to address any problems that arise.
• 05:20 The estimate for that task will be based upon the historic level of bug fixing
• 05:24 effort in the organization.
• 05:27 Finally, some hints and tips.
• 05:29 Be certain that you have listed all the items your project must pay for.
• 05:33 If you don't list it, you won't have budget to pay for it.
• 05:37 Second, if your budget is fixed and your project scope is variable,
• 05:41 allocate the budget amount to each phase and prioritize the work for that phase.
• 05:45 When the money runs out, stop working and go to your next phase.
• 05:49 Third, on long projects that span multiple years,
• 05:53 the budget may be funded one year at a time.
• 05:56 Try to plan the project so that a phase ends right at year end.
• 06:00 Then if the funding for the next year is different than the expected amount,
• 06:04 it's less disruptive for the project.
• 06:06 Make sure you've accounted for
• 06:07 any special case considerations mentioned on the previous slide.
• 06:11 And if your project spends money in multiple countries, ensure you account for
• 06:15 any exchange rate effects.
• 06:17 You may feel that creating a project budget is a daunting task, but it's really
• 06:22 very straightforward once you've started the project planning process

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