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There is a close relationship between project management and budgeting. It is very important to estimate the cost of executing a project before starting any kind of work. Although no one can ever know how the project will turn out and what kind of changes or difficulties the project team will face, there are some strategies by which the project manager can roughly estimate the cost or expenses of executing a project.
Importance of preparing Project Budget:
It is not very difficult to understand why it’s important to estimate budget for a project. Most of the time, when a company receives a project from a client, the client also presents the figure for the budget of the project. After finding out the budget, it’s responsibility of the team manager to execute the project while staying in the budget. If the budget is not evaluated, there is chance that the project will require more money and it can create problem for both the client and the company.
Different types of costs in a Project Budget Planning:
As we explained that no matter how carefully we estimate the budget for a project, its estimation and there is always a chance that the actual cost of the budget will be different. But, we can easily divide the entire budget costs into two different sections including direct costs and indirect costs. Direct cost includes labor, salaries of employees and workers, transportation and cost of material. On the other hand, indirect cost includes rent or mortgage for the office space, expenses of office equipment, salaries of administration staff members, insurance of the company and expenses for the registration of trademark or copyrights of the project.
Different Approaches for Preparing Project Budget:
When we estimate budget for a project, there are different theories, approaches and strategies to go through in order to calculate almost the exact budget for a project. One of these strategies is to divide the entire project costs in two different sections; direct costs and indirect costs. In the same manner, there are two approaches for estimating the cost of a project including top down approach and bottom up approach.
Top Down Approach:
This is the approach that is useful when the client gives a definite budget to the company and asks to complete the project within the provided budget. With this approach, the project manager divides the entire project in separate sections and allocates budget for each of these sections. This includes labor costs, material costs, transportation costs, workplace i.e. office or site costs, office equipment costs, project machinery costs and the salaries of the team members and workers that will work on the project. With this approach, it is easy to see if the project can be completed within the budget provided by the client or the manager is required to cut back on some expenses that are not as important as others i.e. hiring a small team for executing the project etc.
Bottom up Approach:
This approach is useful when the client doesn’t know or tell the company about the budget of a project. Instead, he asks the company to provide him with a figure that is enough for completing the budget. With this approach, the company or project manager has the responsibility of allocating the least amount of budget for each part or section of the project and then explaining the cost of the entire project to the client. Some companies use hourly rates where most of the companies provide the client with a lump sum figure to complete the project.
Free Project Budget Templates
Download all these Free Project Budget Templates that can easily help you to prepare your own Project Budget effectively.