How to Create and Manage a Project Budget

Projects are fueled by their budgets. If you run out of fuel, your project will stutter to a halt (and might disappoint a few stakeholders along the way).

Learning how to create and manage a project budget is critical to the success of your future projects—but there’s a lot more that goes into it than simply adding up how much you plan to spend. You have to consider your available resources, account for potential delays, and keep a close eye on scope creep.

This guide will help you understand the multiple layers of a project budget and how you can apply them to your own agency projects.

What is a project budget?

A project budget is a plan for how much you’re going to spend on what. It helps you control the costs of a project and understand where your money is going. But sticking to a defined project budget is easier said than done, especially when you’re working with multiple stakeholders across accumulating tasks.

In reality, project budgets don’t just define estimated costs. They also define how many resources you need and how much time a project is going to take.

If you’re about to start a web design project, you’ll need to consider:

Time: How much time will each task take? It might take 2-3 weeks to create content, a further week for editing, and another couple of weeks for the design—and that’s if things go smoothly. Now, how much will it cost for your team to create those assets and do those tasks?

Resources: What resources do you need to allocate to comfortably complete the project? For example, you might need your in-house design lead working on it full-time alongside a couple of freelance designers working in support roles.

Cost: How much do you need to pay team members and freelancers for the entire project to be completed? Remember to account for meetings, feedback sessions, edits, and creative thinking time, not just the time it takes to create the deliverables.

Why is a project budget important for agencies and professional services companies?

Figure out what’s possible

A project budget essentially informs what’s possible and what’s not.

As well as informing the limitations and opportunities a potential project has, it can help you answer questions like:

• Who needs to be involved in this project?
• How much time will it take to complete the project?
• What is the rate I need to pay each contractor?
• Do I have wiggle room in the budget?
• How many resources do I need to allocate to this project?
• How can I optimize the billable hours?
• What price should I quote the client?

Get a thorough understanding of projects

Project budgets are great for getting a thorough understanding of projects before they even begin.

For example, instead of figuring out that Project A is costing you $X in total, you’ll also learn that Tasks 1, 2, and 3 are costing $X, $X, and $X. You can use these numbers to inform future quotes and proposals.

Creating a project budget is also great for getting useful data for future estimates. If you’re working with a strategist for Project A, you’ll know how much they’ll charge for Project B based on their hourly rate.

Set client expectations

Having a project budget helps you set expectations with your clients. If everyone knows how much everything is going to cost, there’ll be no (or slightly fewer) nasty surprises later down the line. Cold hard numbers are a great antidote to a world of misunderstandings and can provide a firm physical boundary for tasks that fall outside of that budget.

It’s much easier to say to a client, “I’m sorry, the budget doesn’t cover that” than to simply tell them “No”. You can always refer back to the project budget before you agree to any additional tasks that might initially seem minor, but in fact, turn out to be a huge resource and time-suck.

4 things to consider when making your project budgets

Start by accepting that every project budget you create will be an estimate.

Then, consider these questions:

1. What should the project budget include?

A project budget can take many shapes, but regardless of the shape it takes, ensure your budget includes the following details:

• Costs (including estimated and actual costs, such as labor costs, material costs, overhead costs, and other operational costs)
• Time (how much time each task will take and the overall time the project will take)
• Resources (including both internal and external resources)
• Contingency reserves (you need to add some wiggle room for costs and time — e.g., recorrecting a task gone wrong might cost extra)
• Profit estimates (if you’re not creating the project for yourself and are instead quoting a client, you’ll need to decide the percentage of your profit margin or charge a fixed amount)

2. What is the project budget based on?

A project budget is made up of the costs, time, effort, and resources it’ll take to create and manage a project.

Consider the previous budgets of similar projects to get an accurate assumption of how you should develop your current budget, or get in touch with SMEs and use first-hand experience to create your budget. Then, reach out to your required resources to get exact figures, like how many available hours a freelancer has and how much they charge per hour.

3. How often should you tweak a project budget?

This will vary depending on the size of the project. You’ll need to revisit the budget of a multi-month project regularly to check you’re still on track, whereas a short, one-month project might not need revisiting at all.

If you don’t have a pre-defined timeline for a project (e.g., 3 months for a rebranding project), you can create a monthly project budget or extend the timeline for long-term projects. We recommend you create individual project budgets for each project and revisit them regularly—there’s nothing worse than being on the home straight and realizing you’re all out of budget.

4. Who is responsible for budget and project management?

It’s usually the responsibility of the project manager to manage the budget, but they will likely need any estimates approved by the internal finance team and CEO, as well as any external stakeholders.

8 steps to create a project budget

1. Decide how you want to create the budget

There’s no one-size-fits-all strategy for creating a project budget. So, before we move forward with how to create a project budget, first decide which strategy you want to implement.

For example, some folks prefer to use the top-down estimation method (where you decide the total project budget first and then allocate tasks), whereas others prefer to use the bottom-up estimation method (where you decide the budget based on how much individual tasks cost).

There are also other ways of getting an estimation, them being:

• Analogous estimation method (which relies on historical data)
• Three-point estimation method (which uses optimistic, pessimistic, and realistic budgets to create an average)
• Parametric estimation method (which combines data points from previous projects)

2. List project deliverables

Next up, decide on the project scope and deliverables which you can then divide up into individual tasks.

For example, a social media strategy might involve the following deliverables:

• Content
• Strategy
• Media Buying
• SEO
• Graphic Designing

For each of these individual tasks, you’ll need to identify who’s going to do the work and create timelines for when they’ll be completed.

For example, the graphic design part of the project may require you to work with a freelancer, and for the freelancer to complete a publish-ready design, you’ll need to give them time for:

• Reviewing requirements
• Brainstorming ideas
• Creating graphics
• Addressing edits

Dividing the project up based on tasks, subtasks, resources, and timeline allows you to understand exactly where you’re spending the majority of your efforts and money.

3. Consider your resources and timelines

Lots of agencies make the mistake of only addressing their staff in terms of resources, but there’s a lot more that needs to be considered. Here are some of the most common resources that make up a project:

• Team members: Are you using in-house team members or do you need to outsource to freelancers and specialist agencies?
• Training: Do any of your team members need training on new tools or processes to be able to complete the project?
• Equipment and software: Do you already have the software you need or do you need to invest in more? For example, if you’re running a content optimization project, you might need to upgrade your Clearscope account or invest in a new keyword research tool.
• Research: Do you need to carry out research? If yes, who’s going to do it and what information do they need to get started?
• Meetings: Do you need to hold meetings with stakeholders? How will you travel there? Do you need to hire a meeting room?

4. Add in estimated costs

Here comes the heavy work—actually adding cost estimates to the project budget.

If you already work with freelancers or contractors, you can rely on historical data to create estimates. Alternatively, you can reach out to any new external resources you need and ask them for a quote.

We highly recommend creating estimates for every part of the project, and for every expense—however small.

Let’s look at an example. It might take a graphic designer 1-2 weeks to brainstorm and share initial sketches with you. Then, it might take another week to develop mockups, and another week to create the final documents. Find out how much the designer charges for each of these tasks—not just the final deliverable—and add them to your estimates. Then, if the mockup stage requires two rounds of edits, you know how much it will set you back.

5. Create a contingency fund

Every project manager should have backup for “what if” situations.

• What if a freelancer falls sick and has to take a week off?
• What if a content piece requires more rounds of edits than expected?
• What if the cost of a resource suddenly increases?

Since a project budget is not set in stone, you’ll need to keep a contingency fund and make room for potential “what if” situations. We recommend adding buffer money to your project to account for any unexpected situations.

6. Optimize your project budget

The goal of every agency owner is to optimize:

• The billable work completed
• The amount of resources spent on a project

Identify opportunities for optimizing timelines, resources, and costs

For example, can you bulk schedule tasks so the client can provide feedback in one go rather than in dribs and drabs?

Or can your SEO experts, writers, and graphic designers work collaboratively rather than waiting for each other to complete their part of the project?

7. Add in your profit margins

If you’re creating a project budget plan for your clients, you’ll need to add in your profit margins—an important step if you want to make any money on your projects.

Decide if your profit margins are based on a fixed percentage (a healthy profit margin is considered to be 25% for agencies, but you can go up or down).

Alternatively, you can also consider a fixed amount (e.g., $5000 for any social media campaign work you do). Bear in mind that if you choose a fixed amount, you might end up making less overall if the project takes longer than expected or if there are costly hiccups along the way.

8. Send it for review

Once the project budget is done and dusted (and optimized), your project managers can now forward them to their heads for review. Remember to get sign-off from all interested stakeholders—this might include the CEO and finance team, as well as the heads of departments for the team members you’re hoping to use for the project.

Project budget templates

Creating a project budget template means you don’t have to start from scratch for every new project. The information you include will ultimately depend on the type of project and what resources you need to create it.

Here’s an example:

Here are some project expenses you should consider as you’re working out your project budget:

• Team members’ salaries and rates
• Cost of outsourced labor
• Materials and equipment
• Creative thinking time
• Meetings and meeting rooms
• Travel expenses
• Training and development
• Consulting fees
• Office Supplies
• Software licenses
• Marketing materials

Project budget examples

Let’s say, for example, you’re about to start a web design project. Here’s a very basic illustration of what the initial project budget planning might look like.

As you start moving through the project, you can adjust the “estimated time” to “actual time” and revise the budget accordingly.

Your project budget checklist

Ready to get started? Here’s a recap of everything you need to create and manage a project budget.

• What are the project end goal and deliverables?
• What are the potential hurdles and bottlenecks?
• What tasks are involved in the project?
• Who is going to work on the project?
• How much are the hourly rates and salaries of each team member?
• Have I added a contingency fee to the budget?
• What profit would I like to earn on the project?
• Has the budget been signed off by key stakeholders?

How to manage your project budget with Price&Cost

While developing project budgets might look pretty straightforward, it’s not always a walk in the park—especially if you’re wrangling several resources and a multi-layered project over a long period of time.

There are a thousand variables you need to consider to ensure the final project budget ticks all the requirements either set by you or your client. And there’s no one who understands this better than us.

Our powerful project estimation and tracking tool helps you track project budgets and their profitability to make sure you have total visibility over where your money is being spent.

To truly understand what we can offer you, we recommend you take our live demo!