Project Budget Elements

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Keeping a project budget means knowing the difference between a formal budget as kept by the company's finance office and one that's designed to illustrate how much you've spent on any one task.

One common misconception, especially in the IT world, is that accounting is the same as budgeting. That's not true. Accounting is designed for external reporting, whereas budgeting is designed for internal informational needs. Accounting looks back on the money you've spent; budgeting looks ahead. Accounting requires a general overview report; budgeting is geared towards specific content. Accounting history is kept for much longer than budgeting history. Finally, accounting has a lot of software applications available for it, but applications that are designed for budgeting are very few (though the electronic spreadsheet is a very useful tool for budget formulation). Table 9.1 captures these differences.

Table 9.1: Differences between Accounting and Budgeting




Reporting nature



Place in time



Detail of reporting



Length of history kept


Recent activities

Availability of tracking applications



Your company's finance office will handle both accounting and budgeting activities and will likely have specialists in both areas (plus auditing). Accounting isn't something the project manager will do, but budgeting (as least at a high level) is. A bottom-up budget is

Your company's finance office will handle both accounting and budgeting activities and will likely have specialists in both areas (plus auditing). Accounting isn't something the project manager will do, but budgeting (as least at a high level) is. A bottom-up budget is a list of money available, matched to expected outgoing expenses, that takes into account the assumptions and cost estimates developed earlier in the project planning process, puts the expenses into categories, and monitors their usage. You build up from the categories to a total. A top-down budget takes a preallocated pot of money and requires that you dole it out—that is, you have to figure out how best to fit the expense of your tasks, activities, and phases, and the associated hardware and software, in such a way that you don't spend more than the limit you ' ve been given.

In a top-down budget, you ' re forced to prognosticate the areas in which you' l l need the money and how much (assumptions/estimating). In a bottom-up budget, you have the luxury of doing your estimating and developing of hard cost figures before you tell the sponsor and stakeholders how much the project will cost them. (Once you ' ve done so, it' s up to the sponsor and stakeholders to decide whether the project' s a go, depending on its cost and what the constraint drivers will be.)

Popular project management software allows you to directly manage your budget within the project plan, but you can also use a simple, separate, spreadsheet. You can get as detailed as you like, but there are some things you should always keep track of. Here ' s a list of some basic elements you' l l want to track in any budget:

Component or service purchased For example, note that the thing you purchased was a server, or that the service you obtained was a graphic arts service. Budgeted amount How much did your cost estimate originally lead you to believe you' d need for this item? Perhaps you estimated 100 hours at $55 per hour for some graphic arts work. Usually, in your cost estimates, you' l l have that level of detail item, showing how much each task is going to cost, then sum up the entire amount of money you' l l need for a given activity.

Actual cost incurred List the actual price you paid for the item or the service. This number will be the same as the dollar amount of the P.O. that your budget folks cut or the actual cost if there ' s an overrun.

Purchase order (P.O.) number and amount Knowing the P.O. details is key to tracking your orders. You will probably not be the one generating the P.O.; your accounting or purchasing office will handle this function but will be able to provide a copy to you for tracking purposes.

Date paid Note the date that the item or service was paid for.

Supplier or vendor Fill in the vendor or supplier company name and contact information. Reason for budget variance If there ' s a difference (either under or over) for a budgeted item, explain why.

Approving authorities List the person or people who approved the purchase.

Even if you have no accounting background, you need to realize that there ' s a difference between a capital item and an expense. A capital item is a physical thing that can be depreciated over time (a server, for example). An expense is something that either happens once without a tangible asset (such as the purchase of a software package) or during recurring periods (such as yearly maintenance on software or hardware). You' l l need to differentiate between these categories, because they will mean something to the company' s financial people. Additionally, it' s very important that your budget identify which items represent expenses that occur annually, monthly, or during some other period. Only allocating funds for one-time purchases such as servers won' t get you the money you need when it' s time to renew the servers' annual support agreement.

Services are another item that financial people need to know about. Whether you hire a contractor to help you with a certain component of the project or utilize some other service, you ' l l have to indicate the budget item as such.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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  • katharina
    What are the elements of a projected budget?
    2 months ago
  • haylom sebhat
    What is budget elements of project?
    2 months ago

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