The provisional budgeting of a project is part of the financing process which includes this budgeting, but also upstream the evaluation of the cost of the project and downstream the cost control. The budgeting of a project makes it possible to inventory, identify and classify the expenses and revenues acquired or in the process of being acquired.
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The importance of budgeting for a project
It is essential to budget a project, because this makes it possible to evaluate the estimated costs and to compare them with the estimated benefits. In this way, it is easy to see the potential profitability of a project. The budgeting of a project thus puts forward indices on the interest of the realization of the project and on what this one will bring back to the company or to the investors. This budgeting also ensures that the company has the necessary budget and therefore that there will be enough funds to complete the project. It will make it possible to make adjustments throughout it and to aim for the expected balance or margin. Budgeting a project also increases its chances of success.
Please note that budgeting is only one step in the process of launching a project. To support its project, the company must also carry out a feasibility study and a business case that it can present to various investors.
How to budget a project in 8 steps?
- Evaluate as precisely as possible the deadlines for the completion of the project.
- Take into account the direct costs.
- Take into account indirect costs.
- Estimate “valued” expenses.
- Determine budgetary room for maneuver.
- Find sources of funding.
- Estimate the progress costs at each stage of the project.
- Carefully choose a project management tool.
Evaluate as precisely as possible the deadlines for the completion of the project
You should know that the employees of a company will always tend to be optimistic and will generally underestimate the effective duration necessary for their various tasks. It is still important to include them in the evaluation to start from a basic estimate. Then, it is necessary to use the past experiences or that of other companies to make a more precise and adjusted estimate of the human costs of the project. It will also be necessary to take into account the fact that employees and other stakeholders are only productive on average over 80% of their real working time. Finally, when developing the budget for a project, it is also necessary to define a margin for everything related to the changes of tasks.
Take into account direct costs
It is important to take into account the expected expenses and therefore to calculate the direct investment costs. Among these investment items, it is necessary to determine:
- the sum of salaries in proportion to the estimated hours dedicated to the project and therefore the full-time equivalents (FTE);
- operating expenses;
- external labor;
- the various purchases and rental of equipment;
- communication costs;
- travel, meeting and other expenses.
Take into account indirect costs
Budgeting for a project also takes indirect costs into account. Among these budget items, it is necessary to distinguish:
- management costs, which include the salaries of the establishment’s cross-functional services or those subcontracted;
- the various charges which weigh on the company (rent, water, electricity, telephony, etc.);
- financial charges such as a loan or agios;
- taxes and fees;
- general communication and other costs.
Estimate “valued” expenses
“Valued” expenses refer to the expenses of a project which cannot be confirmed by an invoice, but which express the reality of expenses and resources. It can be the loan of a room or equipment or even volunteering. This type of expenditure is particularly important for an association which requests grants or for a company which has partners.
When budgeting for a project, most often it is necessary to translate the amounts requested from investors as a percentage of the total project. For example, by inserting a “valued” room, the total budget will increase and therefore the percentage share requested from a funder will decrease.
Determine budgetary room for maneuver
There is always an element of uncertainty in a project and this is a difficult element to foresee in the estimated budget. Indeed, there may be delays or adjustments during the process. The company will then have to make budget revisions even if the initial cost estimates were accurate. An emergency fund, otherwise known as contingency, must therefore be provided from the start.
However, this capital is difficult to define. You have to be careful not to overestimate the amount which could then seem unrealistic for the people validating the budget. It is therefore recommended to add 10% to the overall expenses for these unforeseen events.
Find funding sources
Finding sources of funding is essential for the realization of a project and particularly for a project in an associative environment with requests for subsidies. A provisional budget must diversify its sources of funding. This reassures investors since a single partner will not assume all the responsibility of the project. In addition, this will ensure the completion of the project even in the event of the withdrawal of one of the funders. Having different sources of funding makes it possible to find a certain financial balance to carry out the project.
Finally, when a company undertakes the budgeting of a project, it is important to know that a self-financed part makes it possible to obtain a valuable balance between expenditure and income. This makes it possible to show their involvement in the project. Recipes can be obtained by:
- the sale of products;
- provision of services;
- grants and the like.
Estimate progress costs at each stage of the project
When budgeting for a project, it is important to determine the costs of advancement at each phase. At the start of the project, these costs will be approximate, but they will be specified at each stage. In order to obtain the validation of all, the budgeting of a project must be as detailed and as precise as possible. Then, it will be adjusted according to the needs and the evolutions of the project.
Achieving a budget over the entire period and phases of a project’s life allows better visibility of its implementation and better adaptability to various constraints. The margin of error will then be less.
Carefully choose a project management tool
To optimize the budgeting of a project, the company can choose to purchase or subscribe to a project management tool. A true collaborative platform, this tool must be very comprehensive and allow all stages of a project to be planned and monitored from day to day. It will make it possible to follow the budget in real time, but also to compare the forecasts and the actual. The user can create interdependencies between the different projects and modify or move tasks according to the evolution of the project.
Example of a budget estimate for a project
Here is the example of the estimated human resources budget of a company wishing to launch the creation of a website. This table represents the different phases from initialization to operation of the project with the resource requirements. For each step, the table indicates the estimated loads per task.
In this example of budgeting for a web project, during the initial phase, the “feasibility study” task is estimated at the following cost: 130.8 * 0.5 + 138.5 * 0.5 + 115.4 * 0.5 or € 192.35. This costing represents half a day’s work for a team made up of a project manager (at € 130.8 per day), a developer (at € 138.5 per day) and a graphic designer (at € 115 , € 4 per day).
For the definition of internal resources, their daily cost must be estimated based on the gross salary of the employees involved in the process. Then, this cost must be increased by the number of days of intervention planned to carry out the tasks and finish the project as a whole. Finally, it will be necessary to assess the ancillary costs, including the cost of licenses, software required for the project, test servers and production servers.
After having assessed the costs, the receipts (grants, partnerships, self-financing, etc.) must be calculated in order to then verify the equivalence between the costs and the financing and obtain at least a balanced budget.
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