Creating the Budget

Learn the essential steps to creating a project budget.

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Course: On-Demand

(upbeat music) Let's consider how to create a budget appropriately. In these lessons, you'll learn about applying estimation techniques to cost and using gathered information about resources to develop a budget. Then we'll look at other details that must go into budget creation and how to format a budget. A critical aspect of planning and budgeting is estimating all the costs involved. So let's look at some practices you can consider for improving your estimates. An estimate is an assessment of a quantitative result. Most importantly, estimates are best expressed as ranges. Like between $1000 and $2,000, $1,500 plus or minus 10%. Single, standalone numbers are for data and facts. Initial estimates should also be in the work-breakdown structure or WBS. Because the exact work that needs to be performed isn't well known at this point, the WBS estimates will have to be reviewed and updated so they can be included in the budget. To get the best possible result, it's better to count, measure and compute when you can. For example, if a piece of equipment needs 10 gallons of fuel, that costs an average of $4 per gallon, use $40 as the estimate, no need to guess. When estimating understand that there's always uncertainty, but you don't always have a single correct answer. You'll often derive estimates through rough and approximate calculations and some assumptions. For example, based on their industry experience, professional contractors hired for home improvements will often provide quotes in terms of dollars per square foot. Computer programmers may be able to look at a set number of lines of code per day to come up with a quote. If you are uncertain about estimates, using a three-point estimate may be helpful. For three-point estimates, consider three cases. The most likely, the most optimistic, and the most pessimistic estimate. Then add these three numbers together and divide by three. A three-point estimate will help accommodate some of the uncertainty. For example, consider your fuel estimate again. Suppose that you believe the most likely costs will be $4 per gallon. If gas prices are rising, you may feel that $4.50 per gallon is your pessimistic case. On the other hand, there may be a slight chance of a price drop. So, you could be optimistic that the cost could be as low as $3.90 per gallon. By adding these together and dividing by three, our estimated cost is $4.13 per gallon or $41.30 for 10 gallons. Starting with the WBS is what's known as a bottom-up estimate. However, sometimes when you don't have enough facts to estimate you may use experience or rules of thumb to get an estimate known as top-down estimating. Reasonable estimates, combine professional experience and judgment with some independent reviews by experts. Estimates need validation too. One easy way to validate an estimate is to determine if you have the correct order of magnitude. The order of magnitude will help you decide whether you have a close estimate by confirming that you are talking about tens, hundreds, thousands, or more. On the other hand, order of magnitude may make a good first guess at an estimate, which you can then refine. Validate estimates by thinking through the estimate with measurable, objective facts, such as those in the WBS. And then looking at the same estimate with subjective approximations, such as rules of thumb or industry guidelines. You may also want to use multiple approaches by multiple estimators before combining the results into a final estimate. Estimation is a team sport. Having input from additional sources will help to improve the estimate's accuracy. To be successful, develop an estimating process, follow it, and be sure that the process incorporates a review of the estimate. Collect input from all relevant sources, including subject matter and industry experts with a high level of project knowledge. Estimates also need buy-in from all stakeholders, from the executive sponsor to project team member. Obtaining buy-in keeps everyone on the same page and make sure that they are pulling together to make the project a success. But estimating isn't without its challenges. for large, complex projects, it's essential to have a team dedicated to the estimating process. In addition, the overall project plan needs to include sufficient time to checkpoint the approach and forecast solutions with the stakeholders before finalization. There also needs to be adequate time for reviewing with experts outside the project team. Following these estimating techniques and tips will help you get the best possible budget.

Beginner Provider : Ray Frohnhoefer 5 Lessons · 20m in Arabic, German, English, Spanish, French, Portuguese, Chinese

Course Description

Once resources are identified, estimation techniques are used to assign costs to resources to develop a budget. Budgets need to consider all the resource costs and then organize them into a properly formatted budget. These lessons will delve into both topics.

What You'll Learn

Identify and estimate the different types of costs
Apply estimation techniques to assign costs to resources
Organize resource costs into a properly formatted budget
Recognize the different standards and formats available for budgets and budget reporting
Evaluate key budget considerations when developing a budget

Key Takeaways

After resources are identified, estimation techniques are used to assign costs to those resources in order to develop a budget.
A budget needs to account for all resource costs and then organize them into a properly formatted budget.
There are different standards and formats available for budgets and for budget reporting.
Developing a budget involves taking certain budget considerations into account.

Frequently Asked Questions

What does this course cover?

It covers using estimation techniques to assign costs to resources and developing a budget, including estimating the different types of costs, assigning costs to resources, budget considerations, and budget reporting options.

What will I be able to do after taking this course?

You will be able to identify and estimate the different types of costs, know the different standards and formats available for budgets and budget reporting, and learn about certain budget considerations.

What lessons are included in this course?

The course includes lessons on Estimating and Estimation Techniques, Assigning Costs to Resources, Budget Considerations, and Budget Reporting Options, along with a Test Your Knowledge section.

Is there an assessment in this course?

Yes, the course includes a Test Your Knowledge section to check your understanding.

Professional Certifications and Continuing Education Units (CEUs)

Project Management Institute (PMI®)

Professional Development Units (PDUs): 0.5

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