project budgeting using project management system

Summary

Project planning is a sequence of logical steps, with fixed rules and schedules. Using PMS tools in a project management software, all steps must be followed in order, and none can be skipped. The steps are: 1. Decide what you want to do. 2. Specify what you want to do. 3. Decide what resources you need. 4. Estimate how long it will take you to do it. 5. Estimate how much it will cost to do it. 6. Decide when to do it. 7. Arrange to finance it. 8. Do the thing. 9. Do a review. 10. Repeat.

What is a project budget?

When a business spends money on a project, it wants to know whether that project is worth spending the money on. In other words, is it worth doing? A project is any set of activities that produces a product. Product is any service, thing, or intangible that gives you something in return: food, clothing, shelter, entertainment, information, and so on. A project costs money. It takes money to build a house, for example, or to design a drug. (It's not clear that the drug is really worth the $80 million it cost to develop it, but that's a different question).  But money is not the only cost of a project. There are costs in terms of time and effort and opportunity cost. Opportunity cost occurs when you spend time and effort on one thing rather than something else. For example, if you spend a month perfecting your new product, but it takes a month to launch it, you lost a month's worth of productivity. Opportunity cost is always real, but it can be hard for us to think about. An economist's approach to a project is to look at all the things the project will cost, and try to figure out all the costs. The economist then figures out what each cost is worth, in dollars, in hours, or in other things. The trouble, of course, is that the economist doesn't know what the costs will be. We don't know yet what it will cost to build a house, or to design a drug, or to write a computer program. To figure out what the costs of a project will be, we have to estimate them before they happen. That is a big job, and no two estimates will be the same but using project management system will help you make accurate estimates. Estimating costs is like estimating the value of a house. When a house is sold, the buyer knows how much it cost to build.

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Project budgeting steps

When you budget a project, you must first estimate the time and effort required to complete the project, and then estimate how much time you think will be left over for other things.  This can be tricky. If you overestimate, you will finish the project early and have less to do. If you underestimate, you will finish late and have too much to do.

To determine how long you think the project will take, you should first estimate how much work it will take. If the project is big and complicated, you will probably have to make several estimates.  The first estimate is often vague and imprecise. Let's say you have an idea for a project, and you think it will take about three hours to do. Now divide that into three equal parts. First, estimate how long you think it will take for you to research the project. Maybe two hours of research, with thirty minutes of interruptions. Second, estimate how long you think it will take to write the proposal. Maybe three hours. Third, estimate how long you think it will take to build the prototype. Maybe two hours. Your estimates don't have to be precise. Just try to cover the range of possibilities.

Once you have your estimates, divide the time into ten equal time chunks, each representing one tenth of the time. For example, two hours of research could be divided into four chunks, each representing twenty minutes of uninterrupted work. Now add up all the chunks. If you have four chunks, you have divided two hours into four tenths of two hours, or twenty minutes each. If you have three chunks, you have divided two hours into three tenths of two hours, or fifteen minutes each.

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project budget example in a construction company

A project budget example in a construction company (construction budget) estimates what it will cost to complete a specific project. The budget is usually created by a project manager who takes into consideration all of the expenses that will occur during the project. The budget is used to determine how much money needs to be collected in order to achieve a specific project. The construction of a house, for example, requires planning. The project manager first needs to find out what materials will be needed. The project manager gathers these supplies, along with any additional items that may be needed, such as paint. Next, the project manager needs to estimate the labor that will be needed to complete the project. The project can be completed by a couple of workers or by a large crew. Next, the project manager must estimate the number of hours that will be used to complete the project. The project manager can consider the time of year the project is to be completed as well as the current weather conditions. Finally, the project manager needs to estimate the cost of the supplies that will be needed. To find this number, the project manager needs to consider several factors. A project manager is careful to list all of the supplies. For example, the project manager needs to determine the cost of paint. The project manager needs to select paint that will withstand the weather conditions and the length of time the project is expected to be completed. The cost of paint that will stay wet for 90 days would be more than paint that dries in 30 days. Once all of the supplies are listed on the budget, the project manager needs to find the labor needed to complete the project. Labor is broken down into the cost of each worker. The project manager must determine the hourly cost of each worker. The project manager then needs to determine who is required to complete the project and when each worker will be ready to begin working. Once the project manager has determined how many workers are required and when each worker will be ready to begin working, he can use project reporting software to define the tasks for each person and assign the work reporting schedules.

let's crunch the numbers

Whenever you start a project, you have to decide how much money you are going to spend. This is a crucial decision. An extra $10,000 spent on making a product better might save you $100,000 in sales, but it might bankrupt you if you spent it badly. So the cost of making mistakes is much higher than the cost of making improvements. Project planning is a bit like poker: you have to know how good cards are in your hand. If you spend all your money on producing a better mousetrap, you'll fail. But if you spend it wisely on marketing, development, and production, you might get a billion-dollar company out of it. Project cost is tricky to estimate. Sometimes you need to guess. Start low, because there are always unexpected costs. If you spend too much, you may have to cut back. But you must also know that you have a good chance of spending too much. First, estimate what sorts of costs you might face. For example, if you need a new computer, you may have to spend $3,000. If you try an old computer, it may not work. So spending $3,000 is a reasonable guess. Next, estimate what sorts of costs you won't have. For example, if you don't buy a new computer, you won't have to pay computer support. So you don't really have to spend $3,000. Finally, estimate what sorts of costs you can estimate reasonably well. For example, you can usually estimate what the cost of new computer parts will be. So spending $3,000 on a new computer is probably a reasonable guess. When you're estimating total cost, remember that you can always spend less than you estimate. But you can't spend more. Using online project management software will save time and simplify the project budgeting process.

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