Creating a realistic project budget is one of the most important things a project manager can do.
Not only does it set the tone for the entire project and whether it is viewed as a success, it's also often the primary measure of your own performance as a project manager. If you are known for creating accurate budgets and carefully managing discrepancies, you will be more likely to be considered for bigger projects.
Unfortunately, it can be difficult to get started on the right foot when you get handed an estimate budget from Sales who have already priced the project for a client. It's very important that you don't allow the business to simply accept that as the project's budget. It's your job to estimate (as much as you humanly can) what the true cost to the business is. This way, you will be less likely to have to explain future discrepancies that may damage your reputation and throw the project off track.
So, how do you create a realistic project budget?
Start with what you know
Using the Sales pricing, Statement of Work and draft schedule you can begin to map out a detailed project plan week by week. Take some time to review previous project information (look at actuals rather than budgets if possible) and make sure the budgets and resource requirements are aligned. It may also be worth sharing the budget with a colleague or team member who has worked on a similar project, especially if it's new to you.
Gather other requirements
Once you have added information from existing sources, reach out to suppliers and vendors and add their estimated fees to your budget. Also make sure to add the costings in the week, so that you can manage cash flow.
Expect change in the first few weeks
One of the best things you can do for yourself is to set expectations (your own and your manager's) that this budget is likely to need tweaking, especially in the first few weeks as everyone settles into the work and you gain a better understanding of how long things really take etc.
Review your project budget weekly
Hopefully you are using a project management tool that enables you to easily track actual vs forecast costings and resources. Use this to pull weekly reports and manage the budgets accordingly.
If team members know that you watch budgets closely, they'll be more likely to record their time accurately and notify you of variances early rather than waiting for you to find them at the end of the project!
Read more: Maximize project profitability
A project budget can become your enemy or your defender. If you manage it carefully and communicate it clearly, you'll soon find that it becomes the latter - and that you become a powerful project manager.
Read more: Assembling the project budget