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How to correctly estimate and allocate funds for the project with budget planning

In order to be able to assess the necessary financial resources for your project well and to allocate them efficiently, you need professional budget planning.

For every project - regardless of its size and complexity - there is only a limited amount of funds available.
In order to use these resources skillfully, you need a thoroughly thought-out and well-organized budget planning.

 

Budgeting: What is budget planning in project management?

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In project management , budget planning, also known as budgeting, includes all processes that lead to:

  • Set up,
  • Adapt and
  • Authorise


of a project budget are required.

The approval may be granted by:

  • the client,
  • the Steering Committee or
  • the funding agencies

 

Functions of budget planning - What are the objectives of budget planning?

There are several functions of budgeting.
The objectives change in the course of the project.

Before the project starts

By showing the estimated budget you can show the client before the project starts:

  • present clear objectives,
  • define the necessary steps,
  • coordinate the individual sub-projects

 

and convince him to provide you with the necessary funding.


After the project start

In the course of the project the budget planning helps you to

  • present clear goals,
  • define the necessary steps,
  • coordinate the individual sub-projects
  • Measuring progress
  • performance assessment and
  • Employee motivation

 

This makes budget planning an important tool in both project and resource management. You can use the advantages of budgeting in the planning phase as well as in project reporting and controlling, i.e. during the entire project duration.

 

When should the budget planning take place?

You should do the budget planning before you start the project, because with a clear budget you can negotiate with the donors to get the necessary funds.

 

How does budget planning work in project management?

There are two principles by which you can do budgeting:


The first effort estimation

Two questions in particular are important for estimating effort:

  • How much time will you need to bring the project to fruition?
  • How many employees do you need?

 

The answers to these two questions will provide you with the basic framework for the effort assessment on which you can build.


The additional safety margin

At the beginning of the project many factors are still unclear. It is therefore a good idea to build a buffer - a safety margin - into your budget planning to absorb these uncertainties.

To better convince investors, you can also indicate the expected minimum and maximum budget value. If these two values differ considerably, it may be a sign that your project should be defined in more detail.

From now on, every project will be a successful project!

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What are the different types of budget planning?

A distinction must be made between two types of budgeting:

The Top Down Budgeting

With this form of budget planning, the project manager receives clear guidelines from management. The management sets the goals and releases the money. In budget planning in a company, for example, it would be the management board that commissions development to improve a particular product. The budget in the company is determined in advance for this purpose.

The Bottom Up Budgeting

In this form the budget requirement is first determined in the departments involved and then passed on to the next higher level. At the management level, the total budget requirement is then calculated and approved.

 

Why is top-down budget planning usually preferred?

Even though the bottom-up method involves the employees better and thus motivates them more, budgeting top-down is preferred in practice. The reason for this is that with top-down planning, the budgeting process can be carried out faster, more efficiently and therefore more cost-effectively.

 

What should you pay particular attention to when planning your budget?

It is advisable to follow the following basic rules when planning your budget:

Note the return on Investment

With every project you should make sure that your budget remains realistic, because you also need your return on investment. It is therefore important not to set your own profit margin too low when planning your budget.

Tapping different sources of finance

It is always an advantage not to be dependent on just one investor. It is therefore advisable to find out about the current subsidy possibilities. These can be organized not only by the state, but also by the private sector, for example by a foundation.

If these grants are approved, you can assure each investor that they do not bear the entire project risk alone. This improves your negotiating position considerably.

Involving the employees

If it is possible for you, involve your team in the budget planning. The employees - as experts in their field - can contribute important information with their knowledge and experience, which will make an effort estimation more reliable and accurate.

If you are involved in a large project and cannot do the budget planning yourself, you must of course delegate. However, we strongly advise against leaving budget planning to the accounting department alone. Both the administration and - above all - the teams responsible for carrying out the project should definitely be involved in the budgeting process.

Use the correct safety margin

No matter how carefully you plan your budget, you can never foresee everything. That is why a safety margin is important when planning your budget. However, you should not set your expenditure too high. This discourages potential clients.

A safety margin of 5% can be acceptable for risk items. A better and more common method is to set a mark-up for management fees at 10% of the total budget. This is a legitimate and appropriate item in any budget table.

Plan with delays

When budgeting, you should also bear in mind that you should be very careful when taking over time and effort estimates from the departments. Experience shows that employees are very optimistic about their workload.

Therefore it is good for you to add a time safety margin of 20% in such cases.

Monitor the budget regularly (budgeting controlling)

A project budget is always only a preliminary estimate of the project costs. The actual need only arises in the course of the project itself. That is why regular controlling of the budgeting is of great importance.

In budget planning controlling, the comparison of actual and planned expenditures is crucial. This enables you to estimate in good time where you need to take action to provide additional resources

Keep the communication with your team

You cannot make the project a success on your own. You need your staff. That's why constant contact with your team is very important when planning your budget.

Communication makes it possible for you,

  • build valuable team relationships,
  • to act across departments,
  • to harmonize working procedures,
  • to motivate the employees and
  • to create creative solutions.

With this approach you can effectively counteract unpleasant - and in the current project very expensive - risk factors such as overwork, drop-out or accidents. This way you reduce your expenses and can better keep to your project budget.

 

 

Conclusion

Correct, accurate budgeting is crucial when it comes to convincing investors or monitoring project progress. After all, the budget is about what every project urgently needs - the money for you, your ideas and your staff.