The importance of project budgeting & 7 tips to create realistic budgets
(spoiler alert: it’s not boring).
Retainer fee versus project budgeting
Many agencies prefer to work on a retainer basis. Especially in the US, we see that many agencies still love this method of invoicing. However, in Europe, the monthly retainer is becoming less and less popular as clients don’t accept this method of invoicing anymore. Long term relationships mostly designed by retainer fees are being replaced by cooperation based on projects. Sometimes the client works with several agencies and each new project has to be budgeted. Also, in the US we see a tendency towards more project-based relationships with the clients.
Budgets don’t guarantee success, but they certainly help to avoid failure. The budget is an essential tool to translate creative plans into specific, action-oriented goals and financial objectives. By adhering to the budgetary guidelines, the expectation is that the identified goals and objectives can be fulfilled.
It is crucial to remember that a midsized agency consists of many people and roles. These components need to be orchestrated to work together in a cohesive fashion. The budget is the tool that communicates the expected outcome and provides a detailed script to coordinate all of the individual parts to work in concert.
When things don’t go as planned, the budget is the tool that provides a mechanism for identifying and focusing on departures from the plan. The budget provides the benchmarks against which to judge success or failure in reaching goals and facilitates timely corrective measures.
"Budgets should provide sufficient detail to reflect anticipated revenues and costs for each creative activity."
This philosophy pushes the budget down to a personal level and mitigates attempts to pass the blame to others. Without the harsh reality of an enforced system of responsibility, an organization will quickly become less efficient. Deviations do not always suggest the need for the imposition of penalties. Poor management and bad execution are not the only reasons things don’t always go according to plan. But, deviations should be examined and project managers need to explain/justify them.
Budget and your client
When it comes to poor estimation of project budgets, there are many potential scenarios that might occur, all of which have negative consequences. First and foremost are the effects on meeting the client’s expectations. Not being able to provide the deliverables at the agreed budget might have a significant effect on your own credibility and future projects.
In the sphere of the project, the negative consequences might arise from the very beginning. But in most cases, these problems usually appear unforeseen and suddenly, hence the considerable impact on the project’s development. Then when the problems come to light, it can often be too late to save things by making necessary changes and adjustments to the original budget of the project.
Causes for Improper budgeting
Inaccurate calculations may be the result of a lack of experience or inefficiency in dealing with numbers in general. During the development of a project, it is almost impossible to proceed without any amendments to the initial budget. The importance of budgeting in project management lies in the ability to prevent unnecessary costs and to allocate the correct amount of the budget to each corresponding need. One of the most common problems a project manager is confronted with is poor calculation and a plethora of subsequent alterations and amendments of the project budgets, which are time and energy-consuming.
As the mantra goes, “Time is Money”, and nothing is more harmful to the successful development of a project than a badly configured budget.
Save energy and protect yourself from anxiety, uncertainty, and negative consequences by investing the time to plan an effective budget, from the very beginning of the project. By doing so you will go a long way to ensure project success.
How to make a great budget
1. Use Historical Data
Your project is likely not the first to try to accomplish a specific objective or goal. Looking back at similar projects and their budgets is a great way to get a head start on building your budget.
2. Reference Lessons Learned
To further elaborate on historical data, you can learn from their successes and mistakes. It provides a clear path that leads to more accurate estimates. You can even learn about how they responded to changes and kept their budget under control.
3. Leverage Your Experts
Another resource to building a project budget is to tap those who have experience and knowledge—be they mentors, other project managers, or experts in the field. Reaching out to those who have created budgets can help you stay on track and avoid unnecessary pitfalls.
4. Confirm Accuracy
Once you have your budget, you’re not done. You want to take a look at it and make sure your figures are accurate. During the project is not the time to find a typo. You can also reach out to your experts and other project team members to check the budget and make sure it’s correct.
5. Baseline and Re-Baseline the Budget
Your project budget is the baseline by which you’ll measure your project’s progress once it has started. It is a tool to gauge the variance of the project. But, as stated above, you’ll want to re-baseline as changes occur in your project. Once the change control board approves any change you need to re-baseline.
6. Update in Real-Time
Speaking of changes, the sooner you know about them, the better. If your software isn’t cloud-based and updating as soon as your team changes their status, then you’re wasting valuable and expensive time.
7. Get on Track
The importance of having a project management software that tracks in real-time, like Rodeo, is that it gives you the information you need to get back on track sooner rather than later. Things change and projects go off track all the time. It’s the projects that get back on track faster that are successful.
If you manage your project expenses using these building blocks you’re going to have a sound foundation for your project’s success.
Why is budgeting fun?
Especially project managers work with budgeting and many associate the word “budget” with “dread” or “drudgery.” But it can actually be very rewarding to make budgets that fit the expectation of the client and your co-workers and that are executed within the specific time frame.
Consistent budget management throughout a project will help you stay on top of not only the scope of the project, but also the relationship you have with your clients. By building realistic estimates, holding regular budget check-ins, and adjusting the budget as necessary, you’ll finish projects with happy clients and strong lessons to bring into your next endeavor.
Rodeo. Manage the Madness
Making sure that you create realistic budgets is super important for your projects. A good budget helps guide the creative vision into concrete goals. That's why you need the right data to base your budget on. With the Rodeo tool, you are sure to always have the right data to create realistic and acceptable budgets. Try Rodeo for free today!