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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 estimating the budget for a project is important. 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, the team manager’s responsibility is to execute the project while staying within the budget. If the budget is not evaluated, there is a chance that the project will require more money and can create a problem for both the client and the company.
Different types of costs in a Project Budget Planning:
As we explained, no matter how carefully we estimate the budget for a project, it’s estimated 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: direct and indirect costs. Direct cost includes labor, salaries of employees and workers, transportation, and cost of the material. On the other hand, indirect cost includes rent or mortgage for the office space, expenses of office equipment, salaries of administrative 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 a budget for a project, there are different theories, approaches, and strategies to go through to calculate almost the exact budget for a project. One of these strategies is dividing the entire project costs into two sections; direct and indirect costs. In the same manner, there are two approaches for estimating the cost of a project, including the top-down and the bottom-up approaches.
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 into separate sections and allocates a 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 if 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.
This approach is useful when the client doesn’t know or tell the company about a project’s budget. Instead, he asks the company to provide him with enough figures to complete the budget. With this approach, the company or project manager is responsible for allocating the least budget for each part or section of the project and then explaining the entire project’s cost 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 Project Budget effectively.