Project Management Budgeting Methods

The creation of a budget serves as the basis upon which projects are constructed. The quantity of money that is available for a project is another aspect that acts as a limiting factor since it will impact how the project is developed, the number of human and financial resources that are used, and how the project is carried out. Since the budget serves as a blueprint for the project manager to utilize in determining the project’s course and direction, the budgeting process must be completed before work can begin. In this article, you will get to know about project management budgeting methods.

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What is project management budgeting?

In its most basic form, project budgeting is an estimate of how much it will cost to finish all the activities carried out throughout the project. Creating a budget for a project is essential for gaining buy-in from key stakeholders and helps establish realistic expectations for the project’s costs. Having a budget guarantees that there will be money available for the project.

Of course, the budget must be set before any work begins.

It is easier to keep track of and exert command over project expenditures if how money is spent on various tasks is known in advance. A project budget, however, is not a static document. Throughout the project, it should be carefully tracked, analyzed, and revised as needed.

Why project budgeting is important

  • Creating a budget is crucial to gaining project approval and funding.
  • Having a well-thought-out budget to work off of is essential for keeping project costs in check.
  • The long-term health of a business is directly related to project budgets.
  • Therefore, managing a project’s budget effectively is essential for any project manager. If a project has a well-
  • defined budget, as described above, then the project manager will have a clear picture of the project’s scope,
  • objectives, and goals and be able to manage the project more efficiently.

The following are some of the procedures that can be taken when developing a basic project budget.

1. Estimated budget


To develop a comprehensive budget, you’ll compile income and expense information from each department or cost center. If a cost is not currently known, it can be estimated using the methods of cost projection outlined below.

2. Tasks, milestones, phase

Breaking the project down into manageable chunks, such as tasks, milestones, or phases, can help keep the budget in check and make planning easier. By dividing the project into smaller, more manageable chunks, you may more easily focus on the most important tasks and keep costs down.

3. Add estimates

After cost estimates have been made and the project has been broken down into tasks or phases, the total budget can be calculated by adding the costs associated with each job or degree.

4. Add a contingency budget

Since the full extent of a project is rarely known at the time of budget estimation, it is prudent to set aside a buffer in case unexpected costs arise. The standard is to allocate at least 10% of the overall budget to this category.

Budgeting for a Project. How to Estimate

Estimating a budget can be done in several ways using various forecasting methods. Below is a brief explanation of a few of these methods.

1. Bottom-up estimation- Project Management Budgeting Methods

Most project budgets are developed using the bottom-up estimation strategy. All that needs to be done is to add up the money spent on the various parts of the project. In this context, “total cost” refers to all costs incurred. When every little detail of the project is known, bottom-up estimating shines. It takes a long time to create a budget utilizing the bottom-up estimation method because it considers every part and facet of the project.

It is essential to remember that budgeting is an ongoing process, with budgets expanding and requiring updates as the project develops. Typically, as the project nears completion and its definition and goals become more apparent, the budget becomes much more specific.

As the project’s scope evolves, it will be necessary to make periodic adjustments to the budget.

2. Top-down estimation

The name of this strategy implies that it is the polar opposite of the first method. The top-down estimation method starts with the overall project budget or total cost and then allocates subtotals to each project’s activities, tasks, and stages.

At this point in the process, when it is necessary to decide whether or not the project should be accepted, the top-down method can help while keeping the budget in mind.

The top-down method discourages frequent changes to the plan and revisions in the budget, which is a significant downside given that the scope and planned tasks of every project grow as they go and as the top-down method is implemented.

As a result, it works wonderfully for projects of a recurrent nature, provided that the spirit and scope of the project are well known.

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3. Analogous estimation

This strategy works well for seasoned project managers who have a firm grasp of a particular undertaking and can swiftly create a budget based on their knowledge of previous projects.

For instance, if a project manager has built a mile-long bridge, they can utilize their past data and experience to estimate a budget for a two-mile bridge under similar conditions.

There is a risk that novice project managers will struggle to implement this method because it is only applicable to projects when a precedent already exists.

Moreover, various facets of costs alter over a period due to inflation, salary rise, etc., making analogous estimation a less than reliable method.

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4. Parametric estimation- Project Management Budgeting Methods

Compared to a similar method, this can be seen as an advancement—parametric methods center on collecting information on related initiatives and using that information to inform the current endeavor.

As an illustration, a project manager can take the current project’s material and labor costs and estimate training costs and capital expenditures from another project with similar outlay and activities.

Parametric estimate aims to improve the accuracy of a similar estimation method by incorporating data sets that apply to the current project from various other projects, hence increasing the overall relevance of costs.

It employs statistics, historical records, and variables to generate a budget far more quickly than the bottom-up method, with statistically indistinguishable results.

The technique can only be used on projects similar to those that have already been completed, and collecting relevant data sets can be challenging and time-consuming.

Also Read: How to Create Project Timelines and Schedules Right

5. Three-point estimation

The three-point technique is a scenario-based method that averages the greatest, worst, and most likely outcomes. By taking this precaution, project managers increase their odds of finishing the work within the allotted funds. This method’s potential only drawback is that it takes considerable time.

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Conclusion of Project Management Budgeting Methods

A substantial project budget will help complete the project efficiently and make things a lot easier for the project manager, allowing them to focus on other essential project responsibilities.

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