How To Create & Manage A Project Budget Successfully

Budgeting for a project tends to bring you back down to earth quickly. Let’s face it: dreaming about ideal outcomes and brainstorming with your team is exciting. But you’ll need to execute. And creating and managing a budget is a crucial step for turning a concept into a reality.

“A project without a budget is unacceptable in every single case. No project should be started until you know whether or not the benefits outweigh the costs, and you can’t determine that without a realistic budget,” says John Li, co-founder and CTO of Fig Loans, a finance lending company.

1. Recognize the actual needs and wants of the stakeholders

According to Jason Porte, a senior investment manager at Scottish Heritage SG, identifying project needs and making sure all stakeholders involved are on the same page is the first step to effectively managing a project budget.

“It’s not always as easy to understand upfront what stakeholders say they need or want from a project. Undefined aims and expectations on both sides of the table can result from this. I advise taking as much time as required to grasp what stakeholders expect fully. Stakeholder expectations, deliverables, and specifications ultimately define everything, even the budget,” he says.

2. Return On Investment (ROI) matters

When creating a project budget for your team, ROI should inform your efforts. “Many well-intentioned leaders and executives approach budgets from the perspective of the maximum cost they’re willing to accept, but this sets up teams and projects for failure,” according to Emily Hart, Chief Operating Officer at MotionMobs.

“I’ve been consulting with startups, SMBs, and nonprofits to set tech project budgets for more than eight years, and the true guiding principle behind budget-setting is clear. The budget should always reflect the impact you expect to result from the project, not the cost you’re willing to pay.”

As Hart puts it, project budgets are investments – not expenses. And the return on your investment is the most crucial calculation you can make. “A project to fix a problem that costs the company $5,000 should not be given a budget of $25,000. Similarly, a project that could create $300,000 in new sales for the company shouldn’t be expected to succeed with a budget of $25,000,” she adds.

3. Define metrics for success

On that note, defining metrics for success is also a crucial tip when creating and managing a project budget. It allows you to track your progress and adapt your budget accordingly.

“Every project should have defined metrics to measure its success after completion. Having a budget based on those metrics keeps all stakeholders aligned on how much the company should expect to spend, regardless of whether that spend is in dollars or time,” says Hart. “As the project unfolds, each decision and challenge can be weighed by its impact on the metrics for success.”

4. Stay realistic

Staying realistic is one of the most important things you can do for your budget. “Building a realistic budget is in your best interest, so don’t let optics or expectations undercut your costs,” says Li.

“Building contingency plans and leaving space for unforeseen circumstances may mean adding a cash cushion that ups your budgeted expenses, but in this case, it’s much easier to ask for approval than beg forgiveness.”

Here’s a word of advice from Li: Get buy-in from leadership in advance for your budget – your actual budget, not the wishful thinking one. “They’ll be a lot less happy to foot a bigger bill when they were initially promised the world,” he says.

5. Revisit, review, re-forecast

Once you set your budget, it’s not set in stone. “A project will fail if it is allowed to go without budgetary control and re-forecasting. I have witnessed that regular budget management is necessary to keep spending from spiraling out of control,” according to Porte. “A 10% budget overrun is far simpler to fix than a 50% overrun, but if you don’t monitor your spending and forecast, that 10% overrun might quickly become a 50% overrun.”

Porte recommends frequent budget reviews to increase your odds of keeping the project on schedule instead of making forecasts once and forgetting about it.

The key here is to be proactive about inevitable changes. “Don’t underestimate the importance of change management. You need to understand how slight changes can significantly affect costs, identify potential changes and proactively build strategies so you can deal with any changes ASAP,” adds Li. “On the other hand, when you take a reactive approach to change, you can cause even more costly delays on your projects or tank them altogether when a solution can’t be found.”

6. Learn from past projects