Now that we've learned about budgeting, let's find out how it all works together. By now, we know that project budgets helped to control costs throughout the duration of the project. They help project managers establish the main objectives of their project and keep them within a reasonable framework to ensure that the project makes financial sense for the company. What's the best way to start making a project budget? You'll find that as you get further along in the process, there are various resources and tactics that you can use to make sure you aren't overestimating or underestimating. You'll use techniques like researching historical data, leveraging experts, the bottom-up approach, confirming accuracy, and setting your baseline. For starters, you can always review past projects that are similar to yours to get an idea of what your project could entail. We refer to that as referring to historical data. This way, you can find out what past project managers did right and wrong. The more experienced you become as a project manager, the more historical data you will have to draw upon, and the better your estimations will be. In a similar vein, you can leverage experts in the field. To leverage something means to use it to its maximum advantage. Leveraging experts means gathering their insights to do something more effectively. Reaching out to colleagues who worked on a similar project in the past will be a great resource for you as an entry-level project manager. If you're asking someone outside of your company for advice, be sure to avoid sharing any confidential company information with them. Another approach to take is the bottom-up approach. This means thinking about all the parts of a project from the beginning to the end, including making a list of every material, resource, contract worker, or anything that comes with an associated cost, and adding all of that together. You should also ask the vendors you are thinking of working with for quotes, so you can get a rough estimate of how much their work will cost. After you've created your budget with these resources, you'll want to double-check everything to confirm accuracy. Of course, the work doesn't stop once you've created the budget. Next, you'll have to set the baseline. Your baseline is the dollar amount that you'll use to measure against, to find out if you're on track or not, and to measure the success of your project. Once you've set your baseline, you'll have to revisit that number and adjust it to match where the project is currently. Making adjustments in real-time is something you have to do a lot as a project manager. The size of the project and company will determine how often you should re-examine and update the budget. Creating a thorough budget is important to the success of your project. With Project Plant Pals, we suggest breaking the project down into tasks. That's the bottom-up approach. From there, we estimate the cost of each item, add those estimates together, add contingency and tax, and seek overall approval on our budget from our key stakeholders. Since we're creating a new service, we'll need to hire designers and developers to build out the website and develop the app for our customers. Once these tasks are laid out, you'll have to negotiate employee allocations, contractor rates, and shop around for vendors and delivery services. This will help you assign cost estimates to each task. Now that the tasks have been broken down and assigned, you'll need to account for material costs. Do your team members and stakeholders need equipment? Maybe an employee with a disability requires modifications to accommodate or enhance their workplace. Maybe some remote workers need the hardware and accessories necessary to work from home. This is where you will include everything from computers to software related to the launch. Will you need storage space for miscellaneous plants or supplies? "Miscellaneous" is a term that we use to represent additional items that are not included in any of the other areas. Usually, they are minor items or items where there are only one or two of them, and that they are not a major budget line. Be sure to add these items to your expenses. You will also need a few more line items. Start with the fixed cost that won't change over the course of the project. Let's say you're paying to advertise the web developer role to a job board. It may cost you about $50 to post that job description. That's an example of a fixed, one-time cost. Next, you'll need a line item for things like travel expenses and meals. Finally, we want to account for buffers and reserves. You'll need to factor in unexpected costs that may come up later on. Be sure to leave yourself with some buffer room. We've chosen to account for five percent of the overall project budget as our buffer. This is a standard practice and depending upon how much detail you know about the project already, you can raise or lower your percentage for reserves. The client needs to be aware of this buffer in case spending starts to become excessive. In which case, you need to problem-solve with the client and agree to adjust the scope. You'll want to include a planned cost versus actual cost column too. This way, you can keep track of your cost every step of the way. We'll provide you with concrete budget templates in the readings associated with this section so you can fully immerse yourself in the process. Remember, every project will have an estimated cost and a final cost. Your goal is to get your estimated cost as close to the final cost as possible. You may have to recalibrate your estimations during the project. That's when the estimated cost to complete the project comes in. The final cost of your project differs from the forecasted or estimated cost if you weren't exactly on target with your budget. Remember, while your goal is to get as close to the original estimate as possible, that won't always be the case. Each time you're placed on a new project, it will be helpful to look back on the final costs of previous projects and see how close you came to your goal. Now you know the best way to create a project budget. Up next, we're going to talk about maintaining a budget. See you there.
