Realistic and Efficient Project Budgets
Photo by Sean Oulashin on Unsplash
The simple way to start a project budget
By Lenka Davis
Project budgets are like waves upon the sand, it is hard to nail them down exactly. Seasoned project managers will tell you they have experienced projects that had unforeseen costs or underestimated expenses. Don’t let this deter you from creating a budget in the first place. The key is to create an estimated budget that is adaptable and flexible.
For startups and small businesses, follow these steps to create an initial project budget:
1. List of activities
Making a list of all the activities that will be part of the project will give you an idea of the scope of the project. A project scope is going to guide your budget. To figure the scope out, have each team member provide you with a list of activities they think they will need to do. Include items that may or may not be needed so those budget items can be turned on or off as needed.
One way to organize them is to put the activities in sequential order, from start to finish. You can group the activities by adding major categories such as Before starting the Project, During the Project and After the Project is finished. Or you can separate the activities by department such as Marketing, Sales, Customer Success, IT, etc.
In a startup or small business you will have team members that play many different roles, so collaborate with everyone involved to make sure that you are not missing any major steps.
2. Project Cost Estimation
It’s helpful if your list of activities include information about the software app, the system, or the vendor with which the cost is associated. It will help you decide which apps to use when you can see the full list of features everyone needs. The list of features can help you find the cost of the best package to fit your project needs. It can also help you see if there is any overlap between apps so you end up using your limited budget wisely. The same approach should be used for finding the right vendors and consultants to use and deciding on the services you need.
Put your activities and costs into a spreadsheet. This will allow you to easily change assumptions as you learn more about the specifics needed. You want to quickly update the numbers and recast the budget. For startups that are building software applications it might make sense to set the default costs to be weekly. Or even for two weeks if you are building the product in Agile sprints.
If your projects are business to business and you have several clients at the same time then set up your budgets per project but break them down into smaller parts such as months.
Add notes in for anything that is a potential risk. Risks can be anything from delays, changes in scope or unexpected expenses.
3. Create different budget scenarios
Project budgets are different from department (sometimes known as functional) budgets. One is for the department headcount along with various ongoing functions, and other, the project budget, is an estimation of work so it is not known exactly what the final cost will be. Projects can have long timelines, such as six months or two years or more, but the budgets are generally designed to fit within a fiscal quarter or fiscal year of the company.
For a startup or a small business the best approach is to create different scenarios. From the Project Management Institute the budget strategy they offer is to be scenario-based.
“Each scenario should be assumption-based. The assumptions should set forth the rationale for each scenario, including best-case, worst-case, and related outcomes:
• The best-case scenario should outline the ideal conditions where everything goes according to plan, and all resources are readily available.
• The worst-case scenario should reflect the impact should known risks and challenges become a reality.
• The most likely scenario should represent a balanced view based on historical data, expert opinions, and current conditions.”
Your spreadsheet should allow you to change the activities and even turn them on and off as you create your three scenario based budgets.
Adding a timeline would be the next step in getting this project off the ground. And identifying ongoing costs of ownership and a budget summary are useful items that your executive team could want to see before they sign off on the project. This would be your next step in getting ready to launch your project.
Fun Fact
Flexible budgeting is the key to a successful project completion. The YNAB app and associated community professes just this philosophy. Their philosophy is to shift your mindset to spend with purpose and save aspirationally. They have a bunch of success stories, but one notable one happened in February 2024 when a fan of both the YNAB app and a Taylor Swift fan received an email telling her she won a lottery ticket to attend the Grammys. This is the same Grammys that had Taylor Swift as a special guest. What did this lucky fan do? She used the YNAB app to move activities around in her budget so she could save enough to fly to and attend the Grammys. Set up a budget that is flexible enough to make your projects and aspirations a reality.
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