{"id":987517564,"date":"2024-02-21T17:24:01","date_gmt":"2024-02-21T17:24:01","guid":{"rendered":"https:\/\/pmchampions.com\/project-budget-management\/"},"modified":"2024-02-23T14:47:28","modified_gmt":"2024-02-23T14:47:28","slug":"project-budget-management","status":"publish","type":"post","link":"https:\/\/pmchampions.com\/en\/project-budget-management\/","title":{"rendered":"Project Budget Management"},"content":{"rendered":"\n[et_pb_section fb_built=”1″ _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_image src=”https:\/\/pmchampions.com\/wp-content\/uploads\/2024\/02\/Budget-Management-en.png” alt=”Risks” title_text=”Budget-Management-fr” _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][\/et_pb_image][pac_divi_table_of_contents title=”Summary” collapse_when_sticky=”on” opened_icon=”:||divi||400″ closed_icon=”;||divi||400″ included_headings=”off|on|on|on|off|off” exclude_headings_by_class=”on” show_keyword_highlight=”on” show_keyword_highlight_placeholder=”Mots Cl\u00e9s …” level_markers_1=”icons” icon_marker_1=”=||divi||400″ level_markers_2=”icons” icon_marker_2=”^||divi||400″ level_markers_3=”icons” icon_marker_3=”E||divi||400″ level_markers_4=”icons” icon_marker_4=”5||divi||400″ title_container_bg_color=”#1a9e21″ body_area_height=”650px” body_area_scroll_color=”#000000″ body_area_text_link_underline=”#000000″ body_area_text_link_padding=”10px|0px|0px|0px|false|false” _builder_version=”4.23.1″ _module_preset=”default” title_font_font=”Quicksand||||||||” heading_all_font=”|600|||||||” heading_all_font_size=”18px” marker_all_font=”|600|||||||” motion_trigger_start=”top” heading_all_font_size_tablet=”15px” heading_all_font_size_phone=”15px” heading_all_font_size_last_edited=”on|phone” border_radii=”on|10px|10px|10px|10px” border_color_all=”RGBA(255,255,255,0)” border_radii_title_container=”off|10px|10px|0px|0px” border_radii_body_area=”off|0px|0px|10px|10px” border_width_all_body_area=”3px” border_color_all_body_area=”RGBA(255,255,255,0)” box_shadow_style=”preset2″ global_colors_info=”{}” theme_builder_area=”post_content”][\/pac_divi_table_of_contents][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.23.1″ _module_preset=”default” background_color=”#f0f3f6″ custom_padding=”0px||0px|||” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”]
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“<\/span><\/span>He who spends and does not count, eats his good and does not taste it<\/i>“<\/span><\/span><\/p>\n

William Shakespeare<\/strong><\/em><\/p>\n<\/blockquote>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n

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What is a project budget?<\/span><\/span><\/h2>\n

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A project’s budget<\/strong> specifically determines the expenses<\/strong>, including their amounts and the corresponding schedule<\/strong> .<\/p>\n

As a central element of the project’s golden triangle (cost-deadline-scope<\/a><\/strong>) and the quality<\/a>-cost-deadline<\/a><\/strong> project triptych, cost is essentially monitored by the project manager, as it determines the overall profitability of the project.<\/p>\n

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Any overrun of the planned cost, for whatever reason (underestimation<\/strong> of costs, variations in the profiles of the stakeholders, unforeseen events in the subcontracting<\/strong>, etc.), has a direct impact on the budget<\/strong> balance and the financial performance<\/strong> of the project, in terms of margin or profitability.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>[\/et_pb_text][dipl_separator seprator_thickness=”1px” separator_color=”rgba(0,0,0,0.54)” _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][\/dipl_separator][et_pb_text _builder_version=”4.23.1″ _module_preset=”default” hover_enabled=”0″ global_colors_info=”{}” theme_builder_area=”post_content” sticky_enabled=”0″]

To ensure profitability<\/strong> and prevent overruns, it is crucial to establish a budget plan<\/strong> at the beginning of the project, from the preparation and negotiation phases.<\/p>\n

This plan clarifies the work to be done and makes it easier for stakeholders, including validators, to understand.<\/p>\n

During the course of the project, this plan serves as a baseline<\/strong> to assess actual expenses against budget forecasts and project progress.<\/p>\n

This will allow you to react quickly in the event of deviations or unforeseen events.<\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row column_structure=”1_4,3_4″ _builder_version=”4.23.1″ _module_preset=”default” custom_margin=”||40px||false|false” link_option_url=”https:\/\/pmchampions.com\/en\/how-to-apply-contract-effectively-to-agile-project\/” link_option_url_new_window=”on” border_radii=”on|0.25rem|0.25rem|0.25rem|0.25rem” border_width_all=”1px” border_color_all=”#dee2e6″ box_shadow_style=”preset3″ box_shadow_vertical=”5px” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”1_4″ _builder_version=”4.22.0″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_image src=”https:\/\/pmchampions.com\/wp-content\/uploads\/2023\/09\/Agile-Contract-en.png” title_text=”Contractualisation” _builder_version=”4.22.0″ _module_preset=”default” width=”100%” width_tablet=”100%” width_phone=”100%” width_last_edited=”on|tablet” max_width=”100%” custom_margin=”-11px||-11px||false|false” custom_padding=”|10px||10px|false|false” border_radii=”on|5px|5px|5px|5px” global_colors_info=”{}” theme_builder_area=”post_content”][\/et_pb_image][\/et_pb_column][et_pb_column type=”3_4″ _builder_version=”4.22.0″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text _builder_version=”4.23.1″ _module_preset=”default” text_font=”Quicksand||||||||” text_text_color=”#619ccd” text_font_size=”26px” text_line_height=”1em” custom_margin=”|||-40px|false|false” custom_margin_tablet=”|15px||15px|false|false” custom_margin_phone=”|15px||15px|false|false” custom_margin_last_edited=”on|tablet” text_font_size_tablet=”20px” text_font_size_phone=”20px” text_font_size_last_edited=”on|phone” global_colors_info=”{}” theme_builder_area=”post_content”]

Agility:<\/strong><\/span><\/h6>\n

Discover our articles on agility<\/a><\/span><\/strong><\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.23.1″ _module_preset=”default” custom_padding=”0px||0px|||” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row _builder_version=”4.23.1″ _module_preset=”default” custom_padding=”||0px|||” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text module_class=”blue-list list_space” _builder_version=”4.23.1″ _module_preset=”default” custom_padding=”||21px|||” global_colors_info=”{}” theme_builder_area=”post_content”]

Budgeting a project: a piece in 4 acts<\/span><\/span><\/h2>\n

Act 1 – Estimating Costs:<\/span><\/span><\/strong><\/h3>\n

Estimating the cost of the project involves evaluating the various expenses to be expected, also known as investment items.<\/p>\n

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This includes:<\/p>\n

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  1. The labour cost estimate, which<\/strong> includes the costs of all the internal human resources required to carry out the project. This calculation is based on the Average Daily Costs<\/strong> (ADC<\/strong>) defined by profile (cost profiles) \"\"<\/li>\n
  2. An estimate of the cost of the external services<\/strong> that the service provider will have to finance as part of the project. These can be subcontracted interventions covering manpower needs, profiles not available internally or specific expertise needs.<\/li>\n
  3. Estimation of provisions<\/strong>, including the contingency for operational \n risks<\/a>\n<\/strong> as well as the financial provision to cover any penalties incurred in connection with the commitment.\"\"<\/li>\n
  4. The estimated cost of purchases<\/strong> includes software licenses, supplies, hardware, and room rentals. These expenses are financed directly by the project because they are specific to the project, excluding current structural costs.<\/span><\/li>\n
  5. Estimation of ancillary<\/strong> costs such as transport, accommodation and catering costs, which will be passed on to the customer.<\/li>\n<\/ol>\n

    It is important to emphasize that these costs represent the raw material for the construction of the project budget.<\/p>\n

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    Budget & Turnover<\/strong><\/h4>\n

    The budget consolidates all planned expenses. To obtain the sales price<\/strong> to the customer, it is necessary to add the applicable margins<\/strong> on the cost items and to deduct any commercial discounts.<\/p>\n

    This selling price is included in the turnover.<\/strong> It will be reflected in the accounts of the entities concerned.<\/span><\/p>\n

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    But what do we mean by valorization?<\/strong><\/h4>\n

    The valuation of a cost<\/strong> corresponds to the associated turnover, as recorded in the company’s accounting.<\/p>\n

    A project can be valued based on actual expenses incurred or according to other approaches, such as the progress of the project.<\/p>[\/et_pb_text][\/et_pb_column][\/et_pb_row][\/et_pb_section][et_pb_section fb_built=”1″ _builder_version=”4.23.1″ _module_preset=”default” custom_padding=”0px||0px|||” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row _builder_version=”4.23.1″ _module_preset=”default” custom_padding=”||0px|||” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text module_class=”blue-list list_space” _builder_version=”4.23.1″ _module_preset=”default” global_colors_info=”{}” theme_builder_area=”post_content”]

    Understanding Margins<\/strong><\/h4>\n

    A distinction should be made between the individual margin, which applies to production costs (in-house or subcontracted labour) and the project margin.<\/p>\n

    A. Individual margin:<\/strong><\/span><\/p>\n

    It consists of applying a margin to each cost profile to obtain the Average Daily Rate (ADR) of each profile, representing the selling price to the customer.<\/p>\n

    For example, if Patrick is sold at an ADR of \u20ac500 while his Average Daily Cost (ADC) is \u20ac350, a margin<\/strong> of 30% (\u20ac150) is included in his ADR.<\/p>\n

    This margin is crucial for budgeting, especially in cases where prices are individualized (such as in management contracts or listings).<\/p>\n

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    B. Project margin:<\/strong><\/span><\/p>\n

    This is the overall margin of the project, calculated by subtracting the expenses from the selling price to the customer (the Turnover).<\/p>\n

    This project margin is expressed as a percentage of revenue.<\/p>\n

    For the project manager, the project margin is a key performance indicator (KPI): one of their main responsibilities is to ensure that the margin sold is not degraded throughout the project.<\/p>\n

    Example of margin calculation:<\/strong><\/span><\/p>\n

    In a project involving the following expenses:<\/p>\n