Establishing a Strong Foundation: The Basics of Project Budgeting

Every accomplished project leader and project management officer (PMO) knows that effective budgeting is fundamental to project success. This is especially true when businesses of every kind are facing financial challenges due to current economic uncertainty. External factors like environmental, social, and governance (ESG) regulations, increased market competition, and quickly advancing technology add new costs to already stretched or reduced budgets. But bigger budgets don’t always equate to better results. When budgets are strict, project leaders can still yield impressive results. It’s all about ensuring your budget is clearly defined and well-optimized. You just need to adopt the right approach and intelligent tools.

In this article, we’ll go back to the basics of project budgeting. Let’s explore the tools that can improve and simplify your budgeting, like project portfolio management (PPM) software, and outline essential best practices to help ensure success.

The Key Components of a Project Budget

To establish a strong foundation with your project budget, you must consider several key components—and get them right from the start. Let’s explore.

Cost Estimation

Cost estimation involves predicting the total cost of a project, from the cost of materials to the price of labor. This helps project leaders communicate realistic goals to project stakeholders and, in turn, secure enough funding to complete the project successfully.

PMOs can create accurate cost estimations by analyzing historical project data and building a detailed work breakdown structure (WBS) that details every step and component. This ensures that project leaders have considered every potential cost and won’t face unexpected, additional costs further down, impacting initial estimates. PPM or strategic portfolio management (SPM) technology helps improve cost estimation accuracy by creating a single source of truth (SSOT). This gives project stakeholders access to all the data they need in one place and provides capabilities like financial forecasting that better predict costs over time.

Contingency Planning

Even with intelligent forecasting tools, we can’t predict the future with total accuracy. That’s why contingency planning—preparing for every eventuality and building a financial buffer into your project’s budget—is vital to project success. Identifying potential risks in advance and putting aside an emergency reserve helps build resilience and ensure your project stays on track, even when the unexpected happens.

Using intelligent PPM software solutions, PMOs can more effectively plan for contingencies. Planisware, for example, has scenario planning capabilities, such as what-if scenario planning. This enables users to create and compare various project scenarios and simulate portfolio changes.

Tracking Expenses

Business projects vary significantly in priority, scope, and time, so keeping on top of expenses is critical to staying on track. By accurately tracking expenses, PMOs can avoid overspending, unexpected additional costs, and any financial discrepancies that could impact the project’s success. Project leaders must regularly review expenses in line with their project’s budget and the broader business’s goals to ensure maximum return on investment (ROI), minimum waste, and strong strategic alignment. Intelligent PPM or SPM technology will include expense tracking tools that help PMOs centralize and increase the visibility of expenses, budgets, and business goals.

Resource Allocation

Your budget directly impacts your access to resources, including people, materials, equipment, and technology. So, effective resource allocation is fundamental to building a strong project foundation. Project leaders must rank tasks based on priority and effectively match them with resources, ensuring they consider budget, deadlines, and priorities. Getting it right from the start will ensure a smooth process and help avoid any resource waste or shortages.

An intelligent project management solution combines internal and external business data to create an accessible single source of truth for the whole business. Project leaders can easily assign responsibility and identify accountable parties, which helps you manage resources more effectively and complete tasks within budget.

Using a Dashboard

A PPM or SPM software solution can provide a solid base for project budgeting. With the right solution in place, you’ll gain access to an intelligent dashboard, increasing the visibility of your data, processes, goals, metrics, and more. Typically customizable, PMOs can tailor their project dashboard to showcase the most important data.

Using a customizable PPM or SPM dashboard, PMOs and project leaders can confidently make smarter budgeting decisions. You will will be able to:

• See your project’s progress in real-time. Intelligent dashboards use clear and intuitive visual indicators to show whether your project is on track, delayed, or at risk. This gives you and important stakeholders greater visibility, making mitigating risks easier and quickly getting the project back on track after delays.
• Track your budget effectively. The right technology’s ****dashboard will show you your budget, expenses, and predicted project costs all in one place, making it easier to identify and avoid financial risks like overspending.
• Monitor and identify key metrics. By increasing the visibility of vital project metrics, like timelines, resource and budget utilization, and return on investment (ROI), PMOs can more easily report on project success and failures. This may also help you build more effective business cases in the future, enabling you and your team to request additional resources, funding, and time.

Best Practices for Initial Budgeting

Successful PMOs must understand the key components of project budgeting and follow best practices for initial budgeting. Here are some best practices we recommend following.

Involving key stakeholders from the beginning

Communicating with your project stakeholders from the outset is more than a common courtesy. It’s a valuable way to gain insights, understanding, and lessons learned from team members who have lived them. While intelligent tools capture much of this data, project stakeholders will be able to provide the context that technology can’t. When it comes to initial budgeting, be sure you know who your project stakeholders are and work with them to develop the most accurate and informed budget you can.

Use historical data to inform decisions

Your business is sat on a mountain of historical project data that can provide you with everything you need to build an accurate and effective project budget. Using historical data helps prevent over-stretching or undervaluing your project, directly impacting your likelihood of completing your project successfully. Consider investing in tools that can analyze past project data and create actionable recommendations for projects of a similar nature, size, or scope. Checking the quality of your data before using it to inform present and future projects is crucial to ensuring accuracy.

Consider potential risks early on

The sooner you are aware of a risk, the easier it is to find a working solution or, better yet, avoid it altogether. Analyzing your historical project data and involving key stakeholders can help with this step—and so can opting for technology that includes risk identification features, such as what-if scenario planning. Project leaders should consider artificial intelligence (AI) enabled technology that can identify more risks faster to maximize efficiency.

Make updates in real-time

Whether you’re manually updating your data, progression, and scope changes or using a tool that automatically updates those elements for you, timeliness is key. Inaccurate and outdated information means your project, team, and stakeholders quickly get out of sync. This can lead to poor decision-making, incorrect predictions, budgets, timelines, and more. Where possible, opt for real-time updates to avoid data discrepancies.

PPM and SPM Technology for Project Budgeting

Armed with best practices and up-to-date on the key components, PMOs can establish a strong foundation no matter the size of their budget. Planisware provides project leaders with the tools to create and manage project budgets, ensuring accuracy and efficiency from the outset. With Planisware, project leaders can:

• Track the project budget. With a centralized view of data and a customizable project dashboard, you can more easily stay on top of expenses, the overarching budget, and financial predictions.
• Make accurate estimations and predictions. By harnessing historical data, external factors, and AI, Planisware can create accurate cost estimates and project predictions so your initial budget is strong and reliable.
• Identify more risks faster. Stay ahead of risks you can’t control by planning for every eventuality—from expected to unlikely outcomes. Consider all scenarios at scale, plan ahead, and mitigate potential project risks that could come at a high cost.
• Greater resource efficiency within budget. Centralize resource data, enable communication between teams and stakeholders, and provide valuable resource reports, including productivity metrics and trends.