Part of every project planning is to make sure that there is enough budget to carry out the project plan. Putting together a budget that keeps costs to a minimum, while maximizing the project’s quality and scope can be challenging. This is why proper cost and budget estimation is important. Also in some cases, funding is needed to get the project started and set all resources in motion. In a project-based company, managers are tasked to create a project budget estimate that should be approved by all the stakeholders involved. Cost and budget estimation account for every element that goes into completing a project. So you need to do a lot of research, request proposals from contractors and suppliers, and compare each price and cost of all available resources that are needed in the project. Read more about this below and if you need any help with your budget plan, feel free to download our project budget estimate samples made available on this page.
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What Is a Project Budget Estimate?
An estimate is defined as a rough calculation of a value, a number, or quantity. For those who plan on working on a project of any sort such as a construction project, research project, management, or manufacturing project all these entail costs and expenses. While creating a project budget estimate does not only gets you approval from management, clients, or stakeholders this will also help get the funding you need from investors or for a loan. Cost estimation and budget estimates are the processes of forecasting the financial and other resources needed to complete a project within a defined scope. This will also help all parties involved adjust all that’s necessary if the estimates come too high to make sure it fits the targeted budget that is set upon for the project.
How To Create a Project Budget Estimate?
As mentioned, aside from securing the funding that is needed for the project, and project budget estimate can also help provide the basis for project cost control. Having a budget estimate helps you measure the project’s actual cost against the approved budget and see how much costs you’ve incurred already. For your cost estimates, here are several categories that are more or less involved in a project plan.
- Direct and Indirect costs – examples of direct costs include fixed labor, materials, and equipment while indirect costs are incurred such as utilities or quality control.
- Research expenses – these are studies or data to support your project and deliver the best value.
- Labor or Manpower – the cost of team members working on the project, both in terms of wages and time.
- Materials and Equipment – these are all the items your team might need to perform the work, including software, equipment, or other unique materials.
- Vendor and Contractors – the cost of hiring third-party entities such as vendors and contractors, consultants, market research firms, etc. to help complete the project.
- Contingency funds – this is the cost of any contingency plans implemented to reduce risk.
Now that we have more or less identified the usual costs that are expected to incur once you start with that project it’s time to create a project budget estimate. Here are several tips you may want to consider as you begin working on budget estimates.
I. Research and Compare
You need to be able to research, call around and ask for quotations from various suppliers, vendors, contractors and etc. so you can create an estimate for the different costs. This may be a lot of work, but it can help you narrow down your costs, and choose the right materials, equipment, and partners that are essential in the project’s completion. Of course, this is not always all about the cheapest price out in the market you must also consider the quality it brings.
II. Estimate Each Item Cost
With the help of a project checklist, make sure to make a list of the items and resources you need to complete the project and include these in your estimates when calculating the price.
III. Include Taxes and Contingency Expenses
Depending on what type of project you are currently working on, you should know how much any relevant taxes may cost. Don’t forget to add contingency expenses or reserve which is very much needed any case anything unexpected happens.
Since you are about to submit a project budget estimation then always be prepared to revise when necessary. Not everyone is in the same boat when it comes to budgeting, so expect to have a number of revisions along the way. In the end, it all boils down to ensuring that every cent spent is right on the project’s funds and overspending might become an issue.
What Is a Contingency Reserve?
A contingency reserve is an amount of money established from retained earnings to allow for unforeseen losses in business.
What Is Cost Management?
Cost Management is the process of estimating and controlling the costs associated with running a business.
What Is a Financial Forecast?
A financial forecast is a process in which companies estimate or predict how a business will perform in the future.
Budget is an integral part of every project planning, it is one of the deciding factors that could push a project forward or put it to a halt. So it is essential during the planning stage that a project budget estimate is put together to make sure you have the right amount of capital to not only fund that project to but make sure it is completed on time.
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