The project budget is comprised of both direct and indirect costs. Direct costs are direct and identifiable. Indirect costs are those necessitated by the function outside of the project scope. When the scope of a project is too stringent, your direct costs can become greater, and when the scope is too loose, then it becomes more difficult to identify and document them.
So how do you set a project budget that will identify those investment goals for the organization? In simple terms, it is easiest if you think of the goal of the organization as a cor horn. The cor horn is the total cost of all functions outside of the project budget and managed within the scope on the project, but within the organizational priorities allotted by the organization.
1. First, make a copy of your charter. Document the fact that you have assigned an authorized budget for this specific project and the desired outcome of the project. Decide if a formal budget should be done elsewhere.
2. Make a copy of the project charter.
3. Sit down and look at all expenses. Add the cost of those which are not in the charter and any other non-owned expenses you will incur.
4. See if the total cost of all expenses is within the designated budget of the organization and as closely to the agreed upon percentage as possible. Compare the actual with the budget approved.
If some departments have more expense than others, you should ask why and for figures to justify the deviation. Be sure you have a record of all discussions on this topic and a good follow-up that the reasons were addressed and it was not a set of possible more.
5. If any of the expenses outside of the charter are in the ‘necessary to complete the project’ category, then you should consider the spending authority within that department. Is the person authorized to spend the money?
6. Separate the project budget from the organizational budget, but within the organizational budget. Project and organizational budgets do not need to be seen the same. The Difference between the two should be clearly visible.
7. Determine what the commitment of this organization will be. If the organization is larger than one person, then you will have to consider a committee to determine the budget at a one to one meeting. If the organization is only a few people, then it may be that one person or a few people gather at a time to set the budget and submit it to the people.
8. Create guidelines regarding how funds will be obtained. Should it come from within one department, or contact the ‘chicken’ of that department (i.e. upper administrative level). If funds are obtained for this project from someone outside of the department, then there must be a designated chair who would inform other departments that this is needed. Think ahead completely; you could be setting your organization into trouble if they don’t obtain funds from their respective departments. Consider the process for the time it takes to create guidelines.
9. Determine how funds will be used.
10. Determine when and where they should be spent.
11. Establish a budget that provide the actual costs of the project. Use Excel if you are on a budget and an Excel spreadsheet to create a budget that is for a department or person only. If you are using a budget to do more than anyone, then the budget is merely a dollar figure you want to keep in your head.
By following those guidelines, you stand a better chance of setting a project budget which will adhere to all organizational departments and have a plan to implement it.