Ultimate Guide To Project Budgets [with Template & Examples]

Published in

The Digital Project Manager

6 min readJun 18, 2019

Cost estimation is hard — creating a project budget that works for your agency and your clients is practically an art form.

How do you do it right? Start with this cost estimate guide, where you’ll learn:

You’ll also be able to download a project budget template for a website redesign. By the end of this post, you’ll know which type of estimate to use — and when — and the steps and tools to manage your project budget.

Project Budget And Estimation Basics

Whether you like it or not, money talks.

Getting project budgets right and controlling costs is essential to project success. Budgets are usually the overriding factor that trumps all else, and budgets are often the reason why we end up needing to resolve conflicts between agencies and clients.

There’s a lot of pressure, too. The cost estimation process can be stressful and scary; there’s always guesswork involved (hence why it’s a cost estimate, not an accurate forecast) and if you get the project budget wrong, as the project manager, you can find yourself in the firing line.

Managing project budgets successfully isn’t simple. But if you follow the steps for estimating properly, and combine it with a well-written statement of work, you can be confident that your project budget won’t let you down. Read on to find everything you need to start making your project budget work for you!

First, let’s cover the fundamentals. Find answers to common estimation questions below, as well as a list of useful tools for managing estimates and budgets. They won’t do the entire job for you, but project cost estimation tools can track and supply project information that feeds into your estimates and budgetary planning.

The Best Project Cost Estimators

There aren’t many pure play cost estimator tools, but here’s some project management software that includes tools for projects cost estimation, such as time- and budget-tracking functionality that make for more accurate project estimates.

Microsoft Excel — Widely used project cost estimator with plenty of project estimate templates for Excel.
Google Sheets — Free project cost estimation tools alternative to Excel.
Price&Cost — SaaS estimating and cost management tool to manage project financials.
BrainLeaf — Project scoping tool that helps to accurately estimate project costs.
Eastimate — Free SaaS estimation tool to create estimates and timelines collaboratively.
Simplestimate — Free project cost estimator SaaS tool with three point cost estimation and easy sharing.
Web Development Project Estimator — Simple project cost estimator to estimate time and materials for web projects.
Wrike — Complete project management software tool with cost estimation functionality.
CMAP Software — Estimation software with a clean interface; produces estimates for complex projects.

Project Estimate Definition

Within project management, an estimate is simply an approximate calculation of the effort and cost it might take to complete a project. It’s not a guarantee of the final cost — instead, it provides a client with a quote or guide (often a ballpark range estimate) of how much it might cost to do or deliver something so that they can secure budget to start the project. Budgetary estimates are made before a project is officially started.

Reasons Why You Need To Cost Estimate

Estimating might seem like a painful process, but it’s a crucial one. And while it might be tempting to copy and paste a cost estimate and send it on its merry way, it’s important for project managers to understand that every cost estimate is unique. Estimating is a fundamental part of the role of project management — the process of calculating how much a project might cost is important in defining the parameters of a project.

Here’s why you need to cost estimate your project before getting started:

Estimates provide a price — you need to know what you’re going to charge the clients, (and when) so the client can decide whether it’s worth the investment to proceed with the project
Estimates provide clarity — when you know how much budget a client has, the process of producing a cost estimate helps define the approach as the team will need to work together to define the overall approach, roles, responsibilities, deliverables, process, and resourcing plan.
Estimates provide milestones — by breaking a project into phases and tasks, with a level of effort assigned to each, cost estimation provides an opportunity to ‘pulse check’ a project so you can know whether it’s on track or not.
Estimates dictate a resource plan — in defining the approach and estimate, it also defines the level of effort you can apply to the project sometimes requiring the timeboxing of activities or limiting the amount of senior oversight.

Project Estimate Parts

Here’s what a typical estimate will show the client. A basic estimate calculation factors in:

Tasks (what’s going to be done)

Resources (by who)

Rate (at what billing rate, in what currency, with how much tax)

Duration (for how many hours or days)

+ any markup and 3rd party costs (such as hosting, photography, travel or subsistence)

_____________________________

= Estimate Total

Estimate Vs. Budget

An estimate is an approximation, while a budget is some type of financial plan. Usually, a project estimate becomes a project budget after the client approves the project estimation. The project budget determines the total cost allocated by the client for the project.

Estimating For Agile Projects

In the post-waterfall world of agile, there’s a trend to not try to give cost estimates in hours or days at all. Because after all, when is a cost estimate ever right? The alternative is to simply size tasks and get going on a project, see how much you can accomplish and then work out how much you’ll be able to accomplish when you’ve established your velocity. On the face of it, it sounds great — you don’t have to provide any real estimates and you just keep spending until you run out of cash. If you can get away with that, then great. Stop reading now.

The trouble is, that rarely flies. If clients are going to embark on a project, they need to know how much it’s going to cost so they can calculate whether it’s worth doing. They need to be able to calculate the ROI and decide if the benefits of the projects outweigh the risks and costs. And for that, they need a cost estimate.

Over-Estimating Vs. Under-Estimating

Want to play it safe? One of your project manager responsibilities is to deliver projects profitably and on budget. So the easy and safe option can be to over-estimate and add lots of fat, or “pad your estimate”, to ensure you won’t go over the project budget. But playing it safe could cost your agency the entire project — estimate too high and the project could get written off as too expensive and never get started.

The other temptation, especially if you’re a people (or client) pleaser, is to play it risky — to come up with a budget which you know isn’t high enough, but that you know will be palatable for the client. That’s no good either as it simply defers the difficult discussions of needing more budget to later.

The Real Answer: Walk The Estimate Tightrope

Getting the balance right between estimating too high or low enables you to manage the tension between these two elements; safety and risk — creating a cost estimation that the client can buy, but that’s high enough to enable you to deliver on budget.

Read the full article to learn more:
- Types of agency pricing models
- Types of estimates
- Project budget example
- Before you start estimating
- Project estimation techniques
- Create a project budget
- Project estimate template download

Originally published at www.thedigitalprojectmanager.com on May 28, 2019.