Creating a project budget can be a challenging prospect and there isn't anything that adequately prepares us for the task. Some industries don't do project budgeting, others require significant detail, while most fall somewhere in between. When constructing a project budget you need to start with the obvious items and work your way down to the less common.
People and their associate
labor costs usually top the list. This includes individuals from within the company as well as any outside consultants or contract labor brought on board to help. These costs can be estimated based on the task duration, average salary rates used by your company, and negotiated contract rates.
Next, consider material costs. This can vary considerably depending on the kind of project you're working on—software development has virtually no material cost, and capital equipment development can cost more in materials than in labor. Review the project deliverables list and define what material is associated with its production. How many copies are required? Don't forget about the needs of support organizations, which may require copies to support the product once released. How many iterations of hardware prototyping will Engineering need, and how many test units and what spares may be required to support testing? Have the development team estimate not only the Bill of Materials for the product, but also the quantities required to support the tasks associated with development, test, and verification. Creating a Tools and Equipment List in early planning can help with estimating costs for these sorts of items, as well as the lead time needed in the schedule to insure you aren't caught short at a critical moment.
Testing and compliance certification are costs that are easily overlooked. What resources or facilities are needed to test the product? Are outside agents or laboratories (such as Underwriters Laboratories) needed to achieve compliance certification? Will the project be charged for data center or other test facility costs charged to projects?
Will the project require members to interact with other team members or suppliers in remote locations? If so, you will need to estimate the costs associated with travel and the number of trips. Other, lower cost approaches to remote team collaboration include videoconferences or conference calling with web-based file sharing, but most still aren't free, and should be planned for in the overall project budget.
Does your company go to the level of allocating facilities and IT/Telecommunications costs to projects? You may need to budget these indirect costs as well. One company charged the project for the furniture and cubicle partitions on a monthly basis; when the project ended, all that was left in that area of the building was bare carpet.
The list can go on, but much depends upon the policies and practices of the organization. Start with what appears to be the biggest contributor and work your way down. Use our Project Budgets and Cost Tracking template to capture the cost elements of your project and support your estimating process. Get to know the finance or accounting manager responsible for your business unit too. They can provide a great education and be a wealth of knowledge in preparing a budget, based on their experience with other projects.