Key principles of project budgeting

Project budgeting should follow sound principles so that the budget is realistic, accepted and controllable. Key principles are as follows.

1. Base the budget on the WBS and scope: all work should have costs assigned; the budget covers 100% of the scope.
2. Use realistic estimates: involve people who will do the work, and use historical data and several techniques.
3. Link budget with schedule (time-phased): costs are allocated to periods when work occurs, giving a cumulative cost baseline.
4. Include all cost types: direct, indirect, labour, materials, equipment, travel, training, overheads, taxes.
5. Include reserves: contingency reserve for known risks and management reserve for unknown risks, clearly separated and controlled.
6. Be consistent with organisational limits: reconcile with funding limits and cash flow.
7. Get approval and commitment: sponsor and managers must accept the budget (baseline).
8. Make people accountable: assign budgets to control accounts and responsible managers.
9. Document assumptions and basis of estimates.
10. Track and control: monitor actual cost versus budget, use earned value, take corrective action.
11. Change only through change control: revise the baseline only after formal approval.
12. Review regularly and update forecasts.
13. Keep the process transparent and communicate budget status.
14. Consider life-cycle cost, not just development cost.
15. Avoid padding: hidden padding in each item gives poor decisions.

Example: A school ERP project budgets Rs 15 lakh by month, with a 10% contingency, and any extra module request requires approval before budget revision.