How to create (and stick with) a project budget

If your project was a car, a budget would be its fuel. Just like a truck needs gas in its tank, projects need money and resources to keep them going. And as a project manager, you have the power to plan and use those resources in the most effective way—so your project gets to its required destination on time, without running out of gas. 

Because a project budget is essential to move work forward, knowing how to create and follow a solid budget plan is one of the most important project management skills you can develop over the course of your career. 

What is a project budget? 

A project budget is a plan that details how much you’ll spend, for what, and by when. When you create a budget plan in advance and use it to monitor spend throughout your project, you can reduce the likelihood that you’ll run out of resources or go over budget—a common occurrence in many workplaces. In fact, respondents in a 2021 Project Management Institute survey reported that in the last 12 months, only 62% of projects in their organization were completed within the original budget.

Budgeting before you begin your project helps you scope work and control costs. It’s also a good way to pitch your project to stakeholders and get the funds you need, because a detailed spending plan helps approvers understand how costs contribute to your objectives. And as your project progresses, you can use your project budget as a baseline to compare actual spend to budgeted spend and mitigate extra costs as they arise. 

9 steps to create a project budget

Creating a project budget may seem daunting, but you can do it by following a sequence of steps. We’ve laid out each part of the budgeting process below. 

1. Set project objectives

Project objectives are what you plan to achieve by the end of your project. They’re a good place to start because they help you understand where work is headed, and act as a north star while you iron out the rest of your project plan. 

The best objectives are clearly defined and falsifiable, so you can use them as a benchmark to measure success once your project is finished. To write clear objectives, use the SMART methodology. SMART stands for specific, measurable, achievable, realistic, and time-bound. For example, if you were trying to boost visitors to your website, you might set this objective: “By the end of this quarter, increase organic traffic to the website homepage by 10%.” 

2. Define project scope

Once you’ve set your objectives, you can determine the scope of work you’ll need to achieve those goals. Your project scope sets boundaries for your project, such as what work you’ll do—or not do—and what deadlines and deliverables you’re working towards. When defining your project scope, consider the following: 

• Available resources: Before you determine the specific deliverables you want to target, take stock of the resources available to you. If you’re working with a hard budget cap or limited project team bandwidth, you may need to adjust your deliverables accordingly. As such, it’s useful to be aware of any limitations before you dive into the details of deliverables and required resources (which we’ll get to in later steps). 

• Time restrictions: Is there a time crunch for this project, or can you take as long as you need? A tight project schedule can influence the cost of resources. For example, you may need to pay freelancers a rush rate if you’re working with a tight deadline. 

• Non-goals: What’s outside the project scope? It can be helpful to identify what you’re not trying to achieve, so you can avoid scope creep and potential overspending. 

Remember that your project scope is all about setting boundaries. It helps you understand what you want to achieve, what type of work you’ll do, and what deliverables you’re working towards.

3. Break deliverables into sub-dependencies

Next up, list out all the deliverables that fall within your project scope and break them down into sub-dependencies. For example, imagine that one of your project deliverables is to publish a blog post. You might break it down into the following line items: 

• Draft blog

• Edit blog

• Create design images

• Stage in Wordpress

• Share on social media

This method helps you include any hidden project expenses when you create your budget. For example, if you just tried to estimate the budget for publishing a blog post as a whole, you’d be more likely to omit extra costs—such as the hourly rate for a freelance editor, or the price of paid social posts. 

If you prefer diagrams over lists, try creating a work breakdown structure (WBS). This visual tool breaks down work into multiple levels, starting with your main objective at the top and branching out into deliverables and sub-dependencies below. 

4. List required resources

Now that you’ve laid out all of your deliverables and sub-dependencies, it’s time to list the resources required for each item. Be as specific as possible, and remember that “resource” can mean more than just staff or equipment—it may also include indirect costs like training or a physical space to work in. 

To get you started, here are some common project cost categories to consider: 

• Team members: Who are you relying on to do the work? Make a note if they’re salaried in-house staff, or if you need to hire additional hourly contractors.

• Procurement: What do you need to do to acquire external resources? For example, you may need a team member to research the best products to use, communicate with sales reps, and purchase a tool.  

• Training: Do team members need time or resources to get up to speed? Think of the time needed for staff to train new employees or courses required to learn new skills. 

• Equipment: What tools are required? This can include things like extra computer monitors, design software, or even internet service. 

• Space: Where is your team going to work? For example, consider if you’ll require meeting rooms or desk space for new team members, 

• Research: What data do you need? Think if you’ll rely on information like user research studies, web analytics, or polling. 

• Professional services: Do you need to hire external experts, like legal or marketing consultants? 

• Travel: Does your team need transportation, lodging, or an allowance for on-the-go meals? 

5. Estimate amounts

Ultimately, a budget is an estimate of costs. But while we can’t predict the future, there are a few methods to help you make the most accurate estimates possible. And you don’t have to stick to just one—you can use a combination of these approaches, depending on your unique project circumstances. 

Here are a few of the estimation techniques you can use:

Estimate and sum the cost of each individual piece 

Often called a bottom-up estimate, this is the best approach if you know exactly what deliverables and sub-dependencies will comprise your current project. If you’ve created a work breakdown structure, you’re already set up nicely to use this method.

To cover your bases, you can also compare your cost estimates with another one of these methods—for example, you could note how the budget was spent for a similar project in the past.  

Work backwards from a fixed amount 

In this approach, you start with a fixed budget amount and break it up into deliverables or project milestones. While working backwards can get a bit hairy—especially if you don’t already know how much project deliverables might cost—it can be helpful if you need to determine what objectives you’re able to achieve with a limited budget. 

If you need to use this method, try combining it with another one of these options. For example, once you determine what you’re able to achieve, take a bottom-up approach to ensure you’re not missing any critical pieces. 

Compare budgets from similar projects

Previous projects are a gold mine of historical data, because they’re a real-life record of where spend stayed on (or off) track. As such, they can help you see costs you might have overlooked, or how unexpected circumstances might influence spend. If possible, see if you can review lessons learned from a similar project in the past. 

Consider different scenarios

Estimation can be hard for complex projects with a wide range of potential outcomes. For example, if you’re planning an outdoor event in April, costs may vary depending on the weather—you might need tents or fans to mitigate unexpected heat, heaters if it’s too cold, or an indoor venue if it rains. 

In this case, it’s useful to estimate spend for each of these scenarios. Depending on your budget flexibility, you can play it safe and plan for the most expensive scenario. Or, you could calculate expected spend for the worst, best, and most likely outcome—then take the average of all three. 

6. Set aside a contingency fund

Sometimes, the unexpected happens. Tools break, schedules change, and once-in-a-century pandemics make things a bit harder. Or, you might uncover an unexpected opportunity during your project—like the chance to purchase a business asset at a reduced cost. Contingency reserves give your budget extra padding when plans change. The typical recommendation is to set aside 5-10% of your total budget for contingencies. 

Budgeting is a process of estimation, so you should always include a contingency fund. And if you’ve created a 100% accurate budget and don’t end up needing that extra padding, you can bolster your company’s bottom line with the leftover funds. 

7. Build your budget

At this point you’ve identified all of your project’s deliverables, allocated resources, and estimated costs. Now, it’s time for the fun part—creating your actual budget document. Here are some key components to include: 

• Line items for each deliverable, sub-deliverable, and required resource—plus the expected cost of each. 

• A timeline of when you’ll need each resource, and when you expect to spend funds. 

• The person responsible for each budget component. For example, you might note that your assistant editor is responsible for tracking freelancer hours and invoices. 

• Clear documentation of which part of the company budget you’ll pull from for each line item. For example, you may use the marketing department budget to create video ads, and the IT department budget for computer upgrades. 

• A total of expenditures for your entire project. If applicable, include individual totals for each department budget you’ll be using. 

• A place to track actual costs vs. budgeted costs once your project kicks off. 

Project budgeting tools

Selecting the right project budgeting tool is important, too. Make sure the program you choose has functionality to automatically total dollar amounts, so you don’t have to manually recalculate every time you need to adjust a line item. Also, your chosen tool should let you easily share and update your budget in real time, so you can make sure all team members are working with the most current version. 

There are lots of options to choose from, including basic excel spreadsheets and more robust project management software. Not surprisingly, we’re partial to Asana because it lets you input and total line items, build custom fields, assign owners, and easily share information with teammates. And aside from your actual budget, you can iterate on past workflows, create process documents, and save project budget templates to ensure you’re not missing any steps.

8. Make a plan to monitor spend

A budget is only good as long as you stick to it. Plan in advance how often you’ll keep tabs on actual costs vs. budgeted costs, so you can mitigate potential issues before they get too big. You can also decide up-front what you’ll do if you go over (or under) budget.

The benefit of a tool like Asana is that it lets you share, manage, and track your budget in real time. For example, Asana’s Universal Reporting feature automatically pulls data from your projects and displays spend, task status, and completed milestones in one place—so you don’t have to dig to figure out if you’re on track or not. 

9. Get approval from key stakeholders 

Now that you have your project budget plan in hand, it’s time to share it with project stakeholders and ask for sign-off. Thankfully, the detailed plan you’ve made should give approvers a crystal clear picture of how each individual line item will contribute to your project objectives. 

Example of a project budget

Let’s say you’re updating the checkout flow for your mobile app, and your project objective is to decrease average checkout time by 25% in Q3. To achieve that goal, you’ve scoped two priority deliverables and laid out the resources required. 

Here’s a simple example of what your project budget might look like. Note that you’ve included the timeline, owner, and estimated cost for each. You’ve also indicated which department budget you’ll use for each line item, and added columns to track budget approval and actual spend. 

Spend smart with project budgets

A well-crafted budget helps you through the entire project lifecycle—including planning, approval, and execution. Once you’ve mastered the skill of budgeting, you can ensure your project team has the resources they need to conquer key objectives and deliver quality results. And when you set up a process to stay on track with spend, you can tackle unexpected costs as they arise, build trust with budget approvers, and set a solid track record of successful projects. 

Want to learn more about project management? Here are 25 essential project management skills you need to succeed.