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Behind every great project is a solid, data-driven project budget.
Your project budget provides a roadmap for your project’s financials, from initial estimates to actual costs. Without one, you risk overspending, putting your revenue—and your client relationships—in danger.
But how do you create and implement a project budget that accurately reflects your costs, protects your profitability, and gives you real-time performance insights?
Read on to learn what a project budget is, why it’s so crucial to delivering successful projects, and the six steps for getting it right every time.
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What is a project budget?
A project budget is a plan that outlines exactly how much you’ll spend throughout the lifecycle of your project, and what on. It covers everything you need to deliver your project, from direct costs (like your team’s labor and materials) to indirect costs (such as the software you use every day or a subscription to a coworking space for your team to work in—things that are necessary but not linked to one specific project).
It’s essential to set (and stick to) a project budget to ensure project profitability. Whether you’re delivering work for clients or managing internal projects, creating a project budget helps you:
Effectively manage your finances to increase revenue
Clearly communicate project costs and get stakeholder buy-in
Identify and mitigate unforeseen costs in advance to avoid last-minute budget creep
6 steps to creating and managing your project budget
No matter what kind of project you’re working on, these six steps will help you to plan it out cost effectively—and profitably.
1. Define the project objectives and scope
First, you need to define the objectives and scope of your project. The project objective is the aim of your project—that is, what you want to accomplish—and the project scope outlines what it will and won’t cover.
Getting crystal clear on what your project is setting out to do ensures that you can direct your resources (like time and money) where they’ll have the most impact, helping you make more informed budget decisions in line with your goals.
Pro tip: Use the SMART framework when setting your project objectives. SMART goals are: Specific, Measurable, Attainable, Relevant, and Time-limited. Mapping your project goals to these criteria helps you set realistic expectations and deliver quantifiable results.
2. Break your project down into specific tasks
Once you have a clear sense of your project’s objective(s) and scope, you can start to break this down into actual work and deliverables. Listing all the specific tasks to be done at the outset helps you to plan ahead, reduce scope creep, and avoid any nasty surprises.
For example, say your project is to deliver five new webpages for a client. On paper, that sounds deceptively simple—but when you dig deeper, you might find it looks something like this for each webpage:
Create a wireframe
Write copy
Edit copy
Optimize for SEO
Design new graphics and videos
Build page
Test page
You may also need to factor in additional tasks, like ongoing calls for client management or feedback sessions. If you don’t account for these “small things” now, you could find yourself losing out on billable hours down the line or charging more than your agreed budget, creating a frustrating client experience.
Pro tip: Use Teamwork.com’s all-in-one project management platform to break your project down into tasks and subtasks. Add estimated time for each subtask and start assigning them to people or roles to understand costs and streamline your budget planning. Then, once your project kicks off, team members can log time on each subtask with our native time tracker, letting you easily compare your estimates with the actual time spent.
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3. List out the required resources
Next, you need to connect each task to the resources you’ll need to complete them.
Looking back at our webpage example above, we can see that we’ll need:
A UX designer to create the wireframes
A writer and/or editor to create and review the copy for each page
An SEO specialist or SEO software to optimize the pages for search engines
A designer to create graphics or illustrations
A developer to build the page
Someone to test and review the finished page
An account manager to keep the client informed and relay any feedback to the right people
But remember, “resources” doesn’t just mean people. What tools, materials, and equipment will you need to complete this project? Will your team need to complete any additional training or travel?
Let’s take another look at our example. Some additional required resources for this project might include:
Travel for account managers or the project team to visit clients on-site
New SEO software and training for team members
Transportation for remote team members to attend a kick-off meeting
Stock photography license fees to use for new images
Again, be as specific as you can. Identifying and preparing for these costs upfront helps you to properly manage your budget and your project.
Pro tip: Want to create an effective resource management plan? Follow our simple framework.
4. Estimate costs
This is where you start to put everything together. By this point, you should know what you need to do and the resources you’ll need to do it, so you can begin estimating costs for each of the tasks and requirements.
Here’s how:
Add up every expected cost. For example, if you’re estimating that you’ll need 20 hours of design work and you need to bring in a freelance designer who charges $X per hour, you can add that total amount to your project budget.
Look at historical data. One of the best ways to create a realistic project budget is to examine previous similar projects. Did you go over or under your estimations? Were there any unexpected costs you forgot to factor in last time? When you use an all-in-one platform like Teamwork.com to manage your projects, you have a wealth of data at your fingertips that you can use for real-time budget monitoring and future planning and forecasting.
Include a buffer. No matter how comprehensive your project plan is, sometimes life happens (or clients get client-y). A contingency fund is an extra bit of money in your budget set aside to address any unforeseen circumstances, so you can adapt to change without taking a financial hit. How much you decide to save is up to you, but 5–10% of your total project budget is a good rule of thumb.
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5. Use the right tool to track and manage your budget
Your project budget is almost ready to go: now, you just need the right project budgeting software to put it into action.
For your project budget to really have an impact, you need to bring it beyond the page and embed it in your team’s day-to-day workflow.
To do this, look for a powerful project management platform that lets you create custom budgets, track costs in real time, and consistently monitor profitability. This way, you can manage everything from one central place, get at-a-glance insights about your performance, and quickly make adjustments if you’re at risk of going over budget.
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6. Monitor your project budget in real time
Managing project budgets becomes so much simpler when you can see everything in real time. And when your budget is already integrated with your everyday workspace, it’s even easier to spot potential issues and fix them before you have a problem.
As your project progresses, your team can log every cost, expense, and billable (and non-billable) hour spent in your centralized workspace, without needing to switch to another tool. Quickly see how everything is tracking against your total project budget at a granular level, and set notifications to alert you when spend reaches a certain threshold so you’re always one step ahead.
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Project budget examples
Different projects require different types of budgets. Here are a few project budget examples you can use to plan out your work based on your business’s—and your client’s—needs.
1. Time and materials budget
A time and materials budget is a classic budget type that factors in—you guessed it—the time and materials needed to deliver a specific project. Use it to track your team’s hours and the materials used to ensure you’re billing your clients accurately.
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2. Retainer budget
For long-term and ongoing clients, you may want to set up your project budget on a retainer basis. For agencies and other client-facing businesses, retainers are gold: they ensure you have a steady stream of reliable work and revenue every month.
But managing fluctuating budgets brings its own challenges. You need to be able to quickly identify and manage over- or underspending so you can make adjustments that keep your retainers profitable—and your clients happy.
With built-in retainer management, you can always see how your budget is tracking every month or quarter and automatically apply any over- and underspend to the next period, so you can focus on delivering stellar work, not endless calculations.
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3. Fixed fee budget
A fixed fee budget is ideal when you know exactly what the overall project budget is and need to work backwards from a set amount.
For projects like these, you need to be confident that you’re staying profitable. Since clients are paying a fixed price for the service or deliverable regardless of the actual hours you end up logging, any scope creep or unforeseen delays could mean your business ends up footing any additional costs—and losing revenue.
To manage this kind of budget, use historical data from previous projects to make informed budget estimations, and set defined profit margins to help you track your profitability in real time.
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Creating, managing, and tracking project budgets in Teamwork.com
Creating and managing your budget in Teamwork.com lets you stay on top of every aspect of your project from one central place. With granular spend breakdowns, expense tracking, and real-time profitability reports, you can be sure you’re maximizing your revenue potential while still delivering great experiences for your clients.
Teamwork.com has a range of features to help you plan, manage, and execute on your project budget, like:
Customizable project budgets for easy budget creation and tracking throughout your project
Billable and cost rates for each team member or project so you can optimize resource allocation and profitability
Time tracking so you can see exactly how long each task really takes, compare estimated vs. actual time logged, and provide accurate invoices to clients
Real-time reporting to provide financial and utilization insights and guide decision-making
Budget threshold notifications so you can proactively monitor project spend
Forecasting so you can predict future costs and manage potential risk
Integrations with your accounting software for seamless invoicing and more efficient workflows
Combine this with Teamwork.com’s comprehensive project, task, and client management capabilities, and you have everything you need to deliver exceptional work that delights your clients and grows your business.
Want to try it for yourself? Get started now for free, or book a demo today.
FAQs about project budgets
What is a project budget?
A project budget is a financial plan that outlines all the costs needed to deliver your project, such as labor, materials, and other expenses. Knowing how much your work costs to complete, and how much you need to charge clients to cover these costs and still make a profit, is crucial to sustainable business growth.
Why do I need a project budget?
Every project needs a project budget to ensure that work stays on track financially. Without a clearly agreed budget to measure your performance against, you risk overspending, which can lead to revenue loss (if you choose to absorb the costs) or unhappy clients (if you charge them more than they were expecting).
How do I create a project budget?
To create a project budget, follow these steps:
Define the project objectives and scope
Break your project down into specific tasks
List out the required resources for each task
Estimate costs
Use the right tool (such as Teamwork.com) to track and manage your budget
Monitor your project budget in real time and make adjustments as needed
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