Budget construction

Each project task will have a cost, whether it is the cost of labor hours or the purchase of equipment. In preparing the project budget, these costs are estimated and added together to get a total.

Problems with estimates

Some of these estimates will be easier to estimate than others. Staff labor costs,for instance, are known, and can be accurately factored in. Equipment can be priced. But what sourcing local labor on a project based in another country? Average salaries can be found on websites but these are not comprehensive.

When the estimated cost of an item is uncertain, set aside a contingency amount in the budget "just in case" the actual cost of a project task is wildly different than the estimate.

Managing the budget

Once the project has been established, the project manager's job is to keep the actual cost at or below the estimated cost. To maximize your chances of achieving this, make sure you meet your project schedule, because blowing your timeline is the most commone reason behind blowing your budget.

And don't allow the scope of the project to creep upwards without also adjusting the schedule and budget to match.

Pareto's Principle

The 80/20 Rule originally meant that 20 percent of the people owned 80 percent of the wealth. But you can apply the 80/20 Rule to almost anything, from fundraising (20 percent of your donors will give you 80 per cent of your income) to project management (20 percent produces 80 percetn of your results).

How does this apply to budget management?

20 percent of your budget elements will constitute 80 percent of the budget amount. Identify and focus on those things.

If something in the schedule has to slip, if something isn't going to get done, make sure it's not part of that 20 percent.