Project budget

The budget of the project - a financial plan of implementation of the project or numerical expression of the action plan of the project, enabling the measurement of the performance of the project in financial terms. It is also referred to as the breakdown of costs, presented in the tables, for the purposes of the activities carried out in the project.

The budget of the project can be called a summary of the financial resources needed to cover the costs of implementation in accordance with the objectives set, with an appropriate level of detail, for the period of total project implementation. It is expressed through the method of allocating resources to the project in terms of value.

Project budget functions

• Orientates the project's contractors to set goals,
• It integrates different contractors and coordinates their activities,
• Disciplines in terms of consumption of funds,
• It is the basis and control tool in the project,
• It mobilizes for economical operation within the project
• The budget of the project is one of the basic and obligatory planning documents of the project.

First and foremost, it has an internal function, defining the possibilities and financial limitations that should be respected during the implementation of the project in accordance with its objectives.

This budget is sometimes referred to as an estimate of costs, i.e. the inclusion of the permissible expenditure foreseen for the performance of individual activities and tasks in the project. It is also an external control tool.

The budgeting process

Project budgeting consists in preparing, agreeing and approving the budget of the project and then transferring it for implementation as a binding action guide.

To create a budget, follow these steps:

• Specify the period covered by the budget
• Determine the type, place of origin and cost carriers covered by the budget
• Develop a budget for project costs
• Check the possibility of implementing the budget from the point of view of the availability of financial resources
• Check the possibility of implementing the budget from the point of view of financial liquidity
• Approve the project budget

The project budget is prepared for the total duration of the project. Depending on the needs, this time can be divided into shorter periods: from annual to semi-annual, quarterly, monthly, weekly and even daily. The list may present the cost structure in several dimensions: generic, cost carriers and places of their creation.

Example of a project budget:

Table 1. Example of the project budget

Direct labor	Weekly rate [USD]	Man-weeks	Costs [USD]
Senior software engineer	1000	10	10,000.00
Software engineer	700	10	7,000.00
Senior specialist	500	3	1,500.00
Specialist - instructor	600	2	1,200.00
		25	19,700.00
Fringe Benefits 30%			5,910.00
	Subtotal 1		25,610.00
Overheads 70%
	Subtotal 2		43,537.00
Other direct costs
Software			8,000.00
Teaching material			1,000.00
	Subtotal 3		52,537.00
General and administrative costs			7,881.00
	Total		60,418.00
	10% profit ratio		6,042.00
	Price		66,460.00

Source: Own study

Definition of the project budget according to PRINCE2

In the PRINCE2 methodology, the project budget is referred to as "Scheduled costs of the resources involved in the project (along with other costs), estimated for the purpose of creating the project plan"

The project budget should include the following:

• The costs of manufacturing and checking specialist products
• The costs of project management activities
• Change management budget (optional)
• Risk management budget (optional)
• Cost tolerance

Budgeting costs according to the PMBoK® Guide standard

Cost budgeting includes the allocation of total cost estimates for individual work items to determine the cost base for measuring project results. Budget determination is the process of combining the stimulated cost of individual actions or work packages to determine the authorized baseline

Input data:

1. Estimating operating costs
2. Basis of cost estimates
3. Range of activities
4. Project Schedule
5. Resource calendar
6. Contracts
7. Resources of the organizational process

Output data:

1. The basis of cost effectiveness
2. Project financing requirements
3. Updating project documents

Project budget — recommended articles

Cost center — Critical chain method — Maintenance management — Program budget — Stages of project — Scope of work — CMM model — Performance Budget — Tactical management

References

• Atkinson, R. (1999). Project management: cost, time and quality, two best guesses and a phenomenon, its time to accept other success criteria. International journal of project management, 17(6), 337-342.
• Baker, S. (1992). On time/on budget: A step-by-step guide for managing any project. Prentice Hall Direct.
• Meredith, J. R., & Mantel Jr, S. J. (2011). Project management: a managerial approach. John Wiley & Sons.
• Wright, J. N. (1997). Time and budget: the twin imperatives of a project sponsor. International Journal of Project Management, 15(3), 181-18