It appears that money doesn't grow on trees after all, nor accumulate in pots at the ends of rainbows. This unfortunately being so, it's imperative for even the largest and smallest of businesses to keep a firm hand on the budgets of all projects that they undertake. However, it's not always as easily done as said; as project manager, you won't have the funding sat on a desk before you, ready to dole out or not, and with clearly visible limitations. Budgets often have to be managed for many competing demands, and can spread out some way into the future; they have to be planned in advance, not just dealt with as and when.

And planned they must be, not merely to ensure that the project in question is completed successfully, but for the wider benefit of the organisation. All resources are finite, after all, and if one project takes more than its allocated share of funds, then this will inevitably deprive other projects and departments of the money they need, and the entire company will be held back. Planning an accurate budget to prevent waste and misuse of funds is essential for any organisation, whatever the size or description, or even for an individual commencing a project (renovating a classic car, for example) that's just for their own benefit.

Careful planning

The budget for a project isn't something that can be prepared in isolation. Other resources - including staff availability alongside material resources - will need to be planned out as well, as will the timing of tasks, because all three impact upon one another. For instance, if a task in a project hasn't been scheduled effectively, it may overrun, delaying the arrival of resources and staff in other areas of the process, and extending the length and cost of the whole operation. With precision allocation of resources and time to each element of a project, the likely cost of individual tasks - and thus of the entire process - becomes much clearer.

Thorough planning can also help to minimise scope creep, one of the most frequent yet preventable causes of project overspend. Scope creep sets in when new tasks are added to the existing project, whether through an oversight, insufficient awareness of the project's boundaries, or an unwillingness to deny a request from a senior stakeholder. More tasks inevitably mean using more resources over more time, and running up higher costs in the process. In planning against scope creep, it's always worth identifying the most critical cost items, as by separating those tasks which must be carried out and allocating the necessary funds to them, any non-essential work can be discarded if it doesn't fit within the remainder of the budget.

The 80/20 rule

The 80/20 rule, also known as the Pareto Principle, is an effective guide for distinguishing those indispensable cost items from less necessary additions. Reflecting the notion that, in a developed society, eighty per cent of the wealth will be controlled by twenty percent of the people, this rule asserts that in any project, a small percentage of the overall project will be responsible for a large majority of the overall impact. If you're uncertain which of your cost items are critical and which are not, assessing the role of each in the final result will flag up those which are truly essential and must take priority in the budget.

The role of estimating

However, not all aspects of a project will have a cost that can be assessed with certainty in advance. Some tasks will always require an estimated budget - just as many of us are familiar with having the cost of improving our homes estimated. If a builder gives you an estimate for the price of a new conservatory or a renovated kitchen, you'd have a right to expect that the projection be reasonably accurate. The same applies when you're estimating your own project costs: it's important to try to produce as accurate a forecast as possible.

It's worth looking at each estimated cost individually to see just how precise your projection is. Have you, or anyone else in the organisation, had experience of the kind of task in hand? If you're contracting work out, can you obtain a number of estimates from different contractors, and are you confident that the contractor is reliable? What, for each task, is likely to happen that could make an estimate inaccurate? By examining what makes up the projection, it's easier to be more confident in its precision, or to discover where it might prove to be flawed. However, even if you work to produce the most accurate estimate possible, it's still important to factor into your budget a 'buffer', funds set aside to allow you to go over estimate if need be, without exceeding the overall project budget.

Tools for better budgeting

As critical as accurate budgeting is, it would be lax to not consider the wide range of tools available to make the job easier and the end results more reliable. Although spreadsheet software such as Microsoft Excel is very useful for collating projected costs, you might want to consider specialist budgeting software, such as comes with Microsoft Project. Not only will dedicated budgeting tools help you to organise your costs and estimates, but it can also show you immediately and clearly what impact any changes to your budget are likely to have on other tasks, or on the project as a whole.

To be confident of keeping complete control of your budget, a short training course - for both management techniques and the more specific use of budgeting software - can be useful for novice and experienced project managers alike. After all, taking and maintaining a tight grip on your funds is essential for the project and the company - so why take any risks? Successful budget management can be the key that unlocks the potential of your projects.