How to budget a project? General tips

Determining a budget is about contemplating the forecast of income and programming of expenses during a certain period. Knowing how to budget a project is not an easy task, since it will depend on the type of methodology applied.

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What is project management?

Project management is about a specific set of operations that will lead to the realization of an objective, with a certain scope and resources, from its beginning to the end.

In all project management, three essential pillars define its objectives: scope, costs, and time. This triad, known as the iron triangle, is fundamental in the development of the project. The modification of any of these three variables affects the others.

As you can see, paying for a project is an important part of its progress. The budget of a project is essential. Establishing it is very helpful to define the scope of work and control expenses.

Budgeting for project management is necessary as it helps to plan, develop and use money effectively. A well-prepared budget allows for good management and successful implementation of the project throughout all its stages.

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Budgeting a project in Waterfall

Within project management, the Waterfall methodology is linear and sequential, in which actions are carried out following an established order. Here success is focused on arriving on time on key dates so a low budget can be available.

When the scope of the project is almost known and you know where you want to go, it is pertinent to use this methodology. At Waterfall, work is rigid and pre-set, with each phase consisting of specific deliverables. To budget in Waterfall, it's important to have a specialist who advises you to break down the tasks. It is advisable to budget by deliverables, and not by hours.

Work Breakdown Structure (WBS)

The work breakdown structure (WBS) organizes the project deliverables at different levels. In this way, the information is visually organized, from the main objective located at the top to the different dependencies.

Regarding the budget, it is convenient to assign specific amounts for the tasks to make it easier to follow up. Projects for which large budgets are required need closer monitoring.

One of the characteristics of Waterfall is the establishment of a closed budget, agreed upon with the customer from the beginning of the project.

The "closed" work of this methodology means that changes cannot be introduced later, so if the possibility arises that the customer requests a new budget, it cannot be modified.

The budget to work with Waterfall is always agreed upon at the beginning. For this reason, it is usually used in simple projects or in which the final objective is totally clear.

Budgeting a project in Agile

Agile methodologies are those that are fundamentally applied in the IT world, that is, companies linked to research and technology. They do not respond to a linear model, so there is more flexibility to establish a budget.

The budget is dynamic and is adapted as the project progresses. Unlike waterfall, where the budget is unique and static, agile methodologies adapt to the changes and requirements of the moment.

The budget, in this case, is rarely calculated annually, but changes that are reflected in the economy, an industry, or even within the company itself are taken into account.

In agile methodologies, money can be allocated according to market variations. The project is quoted by the hour, or by work iteration periods since many times, there is no defined horizon to reach.

Agile methodologies allow us to work iteratively where our hypotheses about the product are validated and the necessary changes are made to achieve the market product fit, so it is adjusted to work with products where uncertainty is high.

Lean budget

This type of agile management is about financing value chains and not projects. A value chain involves the series of steps that an organization follows to create a solution that addresses a customer's need.

The investment of the budget is guided by “horizons”, which means that although there are no structured projects defined as Waterfall, the vision of the future must not be lost sight of.

It is about ensuring that the investment in the initiatives, within the value chain, is carried out properly. However, it is key to set a time horizon during which to define the resources of the value chain.

The budget is participatory, that is, decisions are made collaboratively. For this reason, there is no talk of budgeting projects but value chains.

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Final tip

Available resources, time constraints, and the scope of the project will determine the budget, as well as whether to work with Waterfall or Agile methodologies.