Project Budgeting

1. Real and Overhead Project Costs

Budgeting is an important skill to learn. In addition to an accurate schedule, a project must also have a predictable project budget. The full cost to complete a project must be documented.

The total cost of a project is the sum of two separate categories:

• Real project costs
• Overhead costs

EXAMPLE

The people who program software during a web development project would be considered a real project cost.

Overhead costs can come from resources that help create the project deliverable. If those resources have a long term value to the organization beyond the project, the organization might pay the cost instead of the project.

EXAMPLE

Electricity is needed to run a machine needed on a project. The cost of that electricity is overhead.

EXAMPLE

Computers used by programmers during a web development project will be used after the project, so the organization decides they will pay for the computers. The computers are considered overhead costs.

Including overhead costs in the total project cost gives an organization a full accounting for a project. However, since the overhead costs do not impact the money that needs to be allocated to a project and tracked by the project manager, it's reasonable not to include overhead cost, too.

It's up to the organization or the individual project manager whether to include overhead costs in the project budget.

term to know

Project Budgeting

The process to identify the cost of completing a project.

2. Budgeting Building Resources

The project manager reviews various information to build the budget.

Project scope should be reviewed for any budget requirements.

Effort estimates in the project schedule will be used to budget for resources. Any equipment or other resources needed to complete activity should also be included.

hint

Review budgets from previous projects to find details that might be missed.

3. Budgeting for Effort

When budgeting the effort estimates on tasks, the project manager includes the cost for all people resources. These estimates directly reflect the labor cost needed to complete the project.

IN CONTEXT
In the schedule shown, there are two people resources used to complete the work on the customer complaint form for the web development project.

TASKS	EFFORT
Program Customer Complaint Form	Stephen: 16 Hours Jon: 8 Hours

Stephen will spend 16 hours on the task and John will spend eight hours. In order to arrive at a budget number for this task, those hours are multiplied by the cost per hour of a resource. Let's assume this cost is $45 per hour in our organization.

Budget for Stephen = 16 Hours X $45 Per Hour = $720

Budget for Jon = 8 Hours X $45 Per Hour = $360

The cost calculation on this task for Steven is $720 and John's cost on this task is $360. To find the budget for this task, add Steven's cost and John's cost to get a total of $1,080.

Budget for Task = $1,080

This is then done for each task on a project. In some instances, the budget is done before the schedule. In those cases, when the schedule is complete, it should be reviewed to validate if the budget was accurate. Individual efforts in the schedule might be real costs to the project, or they might be overhead costs.

hint

The project manager should always include real costs in the budget.

4. Budgeting for Non-People Resources

Any non-people resources, such as materials or equipment used to complete the project deliverables, are also budgeted in a project. Fixed cost for supplier support or consultants should also be included in these costs.

As with other costs, the project manager should determine if each non-people resource cost is a real or overhead cost, and whether to include them in the project budget.