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How to Create a Project Plan Cost Budget 

How to Create a Project Plan Cost Budget 

If you are running or thinking about running a project, and you need a project plan, one of the fundamental questions to answer is normally: HOW MUCH will this project cost? 

This means different things to different people. If all the people who work on the project don’t have their hours counted (which you really should by the way), then you may need to just cost up spend outside your business (for example materials, sub-contractors, subscriptions, etc). If you are including hours of the staff worked, and using a day rate to cost this up, you’ll need an estimation of how much effort the project will take in order to create a project budget. 

So, deciding from the above which path to take, you can set about building a project plan, and then you can cost it up. 

Cost can be thought of as either price per day or week for time taken, plus fixed costs (e.g. if the design agency quote a fixed price for a website, or quote a price per day that they spend, you may have very different outcomes). A new laptop will have a fixed cost, a subscription to Adobe Photoshop will be dependent on how long you use it for. 

Producing a cost estimate

In order to produce a cost estimate, you need to summarise the following (representing 7Q – the seven questions to a project plan in this specific order): 

  • WHY are you doing this project – having a focus on this helps decide what needs doing and what is a nice to have for costing purposes 
  • WHAT is it that needs to be achieved (this is the project scope) 
  • WHERE is all this going to be done (location of preparation and delivery can be different places, can affect costs) 
  • HOW are we going to achieve it (this is essentially the plan of work broken down into smaller sections).  
  • WHO is going to do it – different people or companies have different prices. You’ll need to consider availability of people or companies needed. 
  • WHEN is it going to be done? You may think this is the date that your client or boss is asking for, but it is important to work through WHAT, WHERE, HOW & WHO to be able to calculate WHEN (TIME), and see if your answer aligns with the wish list from your boss or client 
  • HOW MUCH (COST) can really only be estimated when the above are known. 

Let me be totally frank here (or even Fred), most project planning and execution failures come down to one of three things: 

  • You don’t deliver WHAT is required 
  • You don’t deliver WHEN it is required 
  • You don’t deliver the WHAT for HOW MUCH it was meant to cost 

What could be going wrong

I have worked and mentored many many project and programme managers on often extremely technical and complex items with many high-risk unknowns and potential hiccups but let me make it simple. 

If you produce a plan that contains the following: 

WHAT we need to do (Scope) 

WHEN we need to do it (time scales) 

HOW MUCH it will cost (budget) 

You are missing key fundamental questions that need answers. 

For example: I am going to: 

WHAT: Build a rocket 

WHEN: Next week 

HOW MUCH: Budget $1000 

What value does this have to anyone? Can it be done? Will it fail? Many project managers feed their clients or boss’ the answers that they’ve been given. Your job as a project manager is to take these inputs, work out the specification for the rocket, then proceed along the 7Q.  

For example, do you understand WHY you need a rocket? If it is to go on display in a museum, this is very different from a manned mission to Mars! 

When you understand WHY you are undertaking the project, you can provide greater detail to WHAT, work out WHERE you will design and build it (for cost planning), then work out HOW you will deliver the project. You need this to then decide WHO is needed for the project, this will have great cost implications. One person may earn 3 x another worker, so going for the highest paid worker may impact your project spend unnecessarily. 

Assuming you have all these nailed, you can calculate WHEN or how long it will take. Remember, you can’t say how long something will take without knowing these, otherwise its a pure guess, not a plan. 

Get costing! 

Now, you have 6 of the 7 questions captured, you are ready to start costing. Don’t start costing before you have estimated or planned the first 6!! 

You are now in a position to simply add all the items up with a cost against each item, and hey presto you have a budget or HOW MUCH the project will cost. 

You can now compare your costs with the client or boss’ request, and see if it lines up with peoples expectations, or see if they are miles apart. 

Next, you iterate, i.e. Go round the loop of 7Q or the seven questions a couple more times to refine your previous estimates.  

Revisit the WHY – challenge all of the assumptions you’ve been given, maybe the WHY for the rocket turns out to be to launch a new GPS satellite, that changes the whole project plan! 

So, you can have a project cost estimate by answering seven questions!!  

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Or check out another one of our blogs, our most recent: 5 Ways to Increase Conversions on Your Site.