Develop Project Budget

DescriptionThe project budget is a detailed estimate of all the costs required to complete project tasks. It is much more detailed than the high-level budget developed in the Initiate Stage. The typical budget specifies costs for staff labor, materials procurement, ongoing operating costs and other direct costs such as travel or training.

Rationale/ReasonThe detailed budget provides the project sponsor with a best estimate of how much the project will cost. The detail budget helps manage expectations and gives the project sponsor information to develop a cost/benefit for the project.

The budget is also used in the Execute and Control stage to help determine whether the project is financially on track.

Who is involved?Project Manager
Project Sponsor
Project Team

ResultsThis information is included in a separate section of your project plan often referred to as “Project Budget.”

Recommended actions and strategiesThe table below lists the steps for developing a detailed budget:

	What to do	How to do it
1	Refer to your high-level budget from the Initiate Stage	Use the high-level budget created in the Initiate Stage as a starting point.
2	Refer to budget information for similar projects	Consult with the project team, project sponsor and others in the organization who have worked on similar projects and refer to their budgets to identify costs.
3	Identify the detailed labor costs associated with the project tasks	To determine labor costs, apply labor rates to the detailed tasks, staff efforts and durations in the project schedule. Also include any costs to acquire staff for the project. Note: Remember to budget for project management costs.
4	Identify the detailed material costs	Refer to any procurement plans that include the costs to acquire equipment, materials and other non-staff resources.
5	Identify any ongoing operating costs	If appropriate for your project, determine rates for ongoing operational costs associated with the project’s product or service. Examples include : Network costs Customer Support costs Software Licensing costs Advertising costs
6	Identify any other specific costs	Look for potential expenses such as training and travel etc.
7	Build in a contingency by assessing the probability of exceeding those costs	Assign a percentage reflecting how much each unknown factor may affect the project as a whole, or a portion of the project. Assessing unknowns is very important to a successful budget. Without it, the crises that are an inherent and regular part of any project will affect your bottom line. The budget estimate should have this contingency built in. It is normal for the overall contingency to be between 20 and 30 percent of the total project cost.

EXAMPLE: Manage Budget

MANAGE BUDGET

Manage Budget during the Execute and Control Stage of the Project

The budget provides the detail estimates for labor, material and other items for the duration of the project. The budget adjustments provide details about budget modifications which occur during the Execute and Control stage of the project.

Budget Line Item FY05-06/Baseline FY05-06/Adjusted Labor Material Other FY Total Labor Material Other FY Total Phase I 1. Initiate Project     1.1 Develop Project Charter $8,600 $0 $8,600 ($600) $8,000 2. Plan the Project     2.1 Develop Work Plan     2.2 Develop Project Control Plan $15,000 $0 $15,000 $15,000     2.3 Finalize Project Plan $5,000 0 $5,000 $5,000 3. Execute and Control Project     3.1  Design Framework $5,000 $0 $5,000 $5,000     3.2  Build Framework $65,000 $0 $2000 $67,000 $13,000 $80,000     3.3 Test the Framework $30,000 $0 $0 $30,000 $30,000     3.4 Implement the Framework $0 $0 $0 $0 $0 4. Close the Project $0 $0 $0 $0 $0 Total $128,600   $0 $2,000 $130,600 $12,400 $143,000 Total Revised Project Budget     $143,000