Project Budget

Quick reference

• 00:04 >> Hello, I'm Ray Sheen.
• 00:06 Let's talk about planning the resource portion of your project,
• 00:09 in particular, let's discuss the project budget.
• 00:12 The project management body of knowledge,
• 00:15 the PMBOK Guide defines the budget as the approved estimate for the project or
• 00:20 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
• 00:29 spend on this project.
• 00:31 The budget Is normally shown as time-based spreadsheet of the planned project
• 00:35 spending, where each column is at time interval such as week or month, and
• 00:39 each row is a project task or a category of tasks, such as travel expenses.
• 00:45 We can assign the cost for each task in the proper column and
• 00:48 row based upon the schedule and task estimates.
• 00:51 We can then sum up all the cost within the given column
• 00:54 to get an estimate of the amount of money to be spent in that time period.
• 00:58 Make sure that you've included all project activities that will be charged as
• 01:02 a project expense, including things like personnel costs,
• 01:05 purchasing costs, and any applicable business overhead costs.
• 01:10 Once you get this estimated costs entered into your spreadsheet,
• 01:13 you can create a time phase cost summary for the entire project.
• 01:16 You can then show the cumulative spending at any point in time on the project.
• 01:21 Let's now look at the steps involved in creating a project budget.
• 01:25 It really isn't very hard.
• 01:27 First, list all the project activities that are to be accomplished on the project
• 01:31 on the left side of the spreadsheet.
• 01:33 Second, estimate the amount of effort for each activity.
• 01:36 Typically, for work done by people on my team,
• 01:39 I use the estimate of the amount of labor hours.
• 01:42 For work done outside the team, I'm using bids and quotes.
• 01:46 Third, convert the estimate into an amount of money in the appropriate currency.
• 01:50 I use the labor rate for the team effort to create their amount.
• 01:53 For purchased items, I'm using the actual supplier quote.
• 01:57 Now, I allocate the estimated amount to time column
• 02:00 based upon when the project scheduled that work to be done.
• 02:04 If the work spans multiple time columns, I spread the estimated costs between them.
• 02:08 And finally, let the spreadsheet add up each column to determine how much money is
• 02:13 required for that time period.
• 02:15 I also create accumulative sum, which is the total of all
• 02:18 the money that the project has estimated to be spent from start until finish.
• 02:23 If it is a long project, you'll need to separate that out into fiscal years.
• 02:28 Perhaps, the best thing to do is to show you an example.
• 02:32 This is a project budget spreadsheet.
• 02:34 Each row is a project task and each column is a month.
• 02:37 On the far left is listed all the project activities.
• 02:40 Next to these activities are the estimates for that work.
• 02:44 I spread those estimates into the appropriate monthly column
• 02:46 based upon the project schedule.
• 02:48 At the bottom,
• 02:49 I can add up the total estimated amount of money to be spent in each monthly column.
• 02:54 Finally, I calculate the cumulative estimated value of money for
• 02:57 any point in time in the project by adding up all of the preceding monthly columns.
• 03:02 I hope that clears things up.
• 03:04 Let's talk about several special cases associated with project budgeting.
• 03:08 One special cases to determine which column to put the cost for
• 03:12 a purchased item.
• 03:13 Depending upon your financial system, that might be the date of the purchase order
• 03:18 being placed, it might be the date when the goods or services are received, or
• 03:22 it might be the date when the supplier's bill is being paid.
• 03:25 Check with your finance person to determine how your
• 03:28 organization records the date.
• 03:31 The second special case is how we estimate the cost of an activity that spends
• 03:35 several time periods.
• 03:37 The two methods normally used are either to spread the cost evenly across all
• 03:41 the time periods, this is known as level loading.
• 03:43 Or to allocate the cost based upon some detailed task planning
• 03:47 of many milestones or events within the task.
• 03:50 For example,
• 03:51 if I have a task that requires one of my team members to work on it for
• 03:55 three months, I will spread the estimated labor cost evenly across all three months.
• 04:00 But a part of that task includes attending a conference in another country,
• 04:04 I will put the estimated conference fees and
• 04:06 the travel cost in the month of which the conference occurs.
• 04:10 The third special case is how to plan your budget reserves.
• 04:14 Some businesses expect all project plans to have a budget reserve,
• 04:18 other businesses will not allow it.
• 04:20 If you have a reverse account, I recommend that you time phase it,
• 04:25 applying some of your reserve to each phase
• 04:27 with the riskiest phase getting the largest portion.
• 04:30 If you do not a have a reserve account, consider inserting reserve tasks and
• 04:35 estimating costs for those reserved tasks as a preplanned risk response.
• 04:40 For example, a software development project has a task titled bug fixing.
• 04:45 Now, they do not intentionally put bugs into the code just so they can fix them.
• 04:49 Rather, they know that software development is risky, so
• 04:52 they create a risk response task to address that problem,
• 04:55 and then show that there's money to support it.
• 04:58 Finally, some hints and tips.
• 05:01 Be certain that you've listed all the items the project must pay for.
• 05:04 If you don't list it, you won't have budget money to pay for it.
• 05:07 Second, if your budget is fixed and your project scope is variable,
• 05:10 allocate the budget amount to each phase, and prioritize the work for that phase.
• 05:15 When the money runs out, stop that work and go onto the next phase.
• 05:19 Third, on long projects that span multiple years,
• 05:22 the budget must be funded one year at a time.
• 05:25 Try to plan the project so
• 05:26 that there's a phase ending right at the end of a fiscal year.
• 05:30 Then if the funding for
• 05:31 the next year is different than expected, it's less disruptive.
• 05:35 Make sure you've accounted for
• 05:36 any special case considerations mentioned on the previous slide.
• 05:39 And then finally, if a project spends money in multiple countries,
• 05:43 ensure your account for any exchange rate effects.
• 05:46 You may feel that creating of project budget is a daunting task, but it's really
• 05:51 very straightforward once you've started the project planning process.

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