The budget is an essential element in the realisation of any project. It is the fuel for your project. Like a car, if you run out of fuel, you will not be able to move forward and reach your destination. So, without financial resources, your project will not succeed.
This is why budgeting for your project is crucial, as it will have an impact on the success or failure of the project. As a project manager, your role is to estimate the overall cost of the project and each of the activities required to complete it. You also need to have a plan for the use of resources, and ensure that your project can be completed within the deadline.
However, estimating the budget for a project is not an easy task. To help you, here is how to budget your digital project or any other type of project in order to reach your objectives without damaging the financial balance of the company.
What is budgeting?
Budgeting a project consists of evaluating the cost of the project in order to be able to control it. It therefore involves identifying, listing and prioritising all the expenditure required to complete the project. Budgeting must also take into account the income that the project will bring you in the short, medium and long term.
Why is it important to budget for your project?
According to the Standish Group Chaos Report 2018, between 2013 and 2017, only 14% of IT projects were a success and 52.7% of projects exceeded their budget forecasts by 189%. And according to PMI’s Pulse of the profession 2018 report, 28% of projects fail due to poor budget estimation.
Budgeting for a project is therefore essential for several reasons:
- to ensure that the company has sufficient funds to complete the project ;
- to make adjustments throughout the project to ensure that it does not exceed the budget;
- to determine the potential profitability of the project and calculate the return on investment by assessing the projected costs and comparing them with the expected gains;
- identify what the project will bring to the company and its stakeholders;
- Increase the likelihood of the project’s success.
Remember that this is an estimate, so it cannot be 100% accurate. Indeed, during the implementation of the project, you may be confronted with hazards and unforeseen events that could cost you time and money. All these parameters must also be taken into account when budgeting for your project.
Both budgeting and feasibility studies are part of the process of starting a project.
5 steps to define your digital project budget
Follow these steps to estimate the estimated cost of your project.
1. List your deliverables and tasks
To start budgeting accurately for your project, you need to identify all the deliverables you want to achieve, and all the tasks you need to do to achieve those deliverables. For example, if your digital project is an e-commerce site, you will need to write the specifications, define the site map, decide on a graphic charter, write the content of the pages, choose and/or create the illustrations, reference the site, etc.
Listing all the tasks to be carried out allows you to take into account all the expenses, even those you had not thought of, such as the cost of a referencing campaign or the fee for a website creation agency.
To help you with this first step, you can use a Work Breakdown Structure (WBS). This tool allows you to break down each deliverable into sub-deliverables to better visualise the project plan.
2. Identify the resources needed
Now, for each task in the project, identify all the resources that will be needed to complete it. This means taking into account both human and material resources. For example, for your website you will need computer developers, a content writer, a graphic designer, computers, software and digital applications, etc.
3. Identify direct and indirect costs
Direct costs are the expenses directly related to the implementation of the project. They usually include
- direct labour (employee salaries, recruitment and/or external contractors, etc.),
- direct materials,
- supplies and equipment used to design the project,
Indirect costs are all expenses that enable the business to operate and benefit the project indirectly. These include
- the company’s premises,
- energy consumption and insurance,
- office supplies,
- working equipment that has not been specifically purchased for the project,
- marketing and communication costs,
4. Estimate the amounts
This is the most important phase of budgeting: estimating the overall cost of the project. In order to make the most accurate estimates possible, there are different techniques which you can combine for greater efficiency.
- Bottom-up estimation: estimate the cost of each of the tasks in the work breakdown structure and add them together to get the total cost of the project.
- Top-down estimation: this involves comparing budgets from similar projects in the past to get an idea of costs and budget breakdown. You can also seek expert advice.
- Phased estimation: this involves budgeting for the project in stages, one milestone at a time. Once one phase is completed, you estimate the budget needed to carry out the next phase. These estimates will be more accurate because you have more information at your disposal.
- Plan for several scenarios: for large projects where the outcome depends on unpredictable parameters (such as the weather or the cost of raw materials), you can consider several scenarios (most expensive, most likely, ideal).
5. Think about the unexpected
Once you have a budget estimate for your project, you must prepare for the unexpected. It is rare that a project goes off without a hitch, exactly as planned. A machine can break down, an employee can leave the company, or a pandemic can turn the whole world upside down.
So, in order to deal with these kinds of contingencies, you should budget an extra 5-10% of your total budget.
There are tools to help you keep track of your project budget. You can also use project management software such as Wimi, which has all the features you need to manage all your projects, whatever their budget.