Take a drive through any city in the world, and you’ll find one abiding similarity: Abandoned projects. From train tracks that go nowhere to houses without siding, projects that never make it to the finish line are a sobering reminder of what happens if you’re not carefully tracking your budget. After all, it’s probable that most uncompleted projects started out with managers who believed they had plenty of funding to finish the job, but didn’t account for rising material costs or unexpected delays. Their mistakes can serve as guidance for you, and we’ll give you all the tools you’ll need to avoid abandoning your project like so many that came before.

Why is it important to effectively track your project budget?

Obviously, the main reason is so that you don’t run out of money and have to abandon the project entirely. But here are some other reasons that tracking budget is essential:

Resource allocation

Tracking the budget helps you allocate resources efficiently. By knowing how much money is available and where it needs to be spent, you can appropriately allocate resources such as staffing, equipment, and materials. That’s especially important in the beginning when you can look at the amount of money you have to work with and carefully divide it.

Cost control

Monitoring the budget allows you to control costs effectively. If expenses start to exceed the budget, you can identify and address the issues early on, preventing the project from going over budget. This proactive approach helps in managing financial resources more effectively. Plus, it gives you a bargaining chip when negotiating rates.

Risk management

Regular budget tracking helps identify potential risks and uncertainties related to costs. It allows you to anticipate and mitigate risks before they become significant issues, reducing the likelihood of budget overruns. Padding your budget for emergencies enables you to stay on track when unforeseen problems arise.

Decision making

Accurate budget information is essential for informed decision-making. Project managers and stakeholders rely on accurate budget data to make decisions about changes in scope, resource reallocation, or any adjustments needed to keep the project on track. If the prices change, the decisions are also likely to change.

Stakeholder communication

Transparent and effective budget tracking fosters good communication with stakeholders. It helps build trust and credibility as stakeholders are informed about the project's financial status. Open communication allows stakeholders to make informed decisions and support the project's success.

Project planning

The budget is an integral part of project planning. It serves as a baseline against which project progress can be measured. Tracking the budget allows you to compare actual and planned expenses and adjust plans accordingly.

Financial accountability

Accountability is crucial in project management. Tracking the budget ensures that team members and project stakeholders are accountable for their financial responsibilities. It promotes a sense of ownership and responsibility for staying within budgetary constraints. This decreases mismanagement of funds and resources.

Performance evaluation

Budget tracking provides data for evaluating the performance of the project team. It allows you to assess the progress of the project regarding cost efficiency and whether adjustments are needed to improve performance. You’ll be able to budget better over time and determine where the real value lies.

Legal and regulatory compliance

Some projects may have legal or regulatory requirements regarding budget management. Accurate tracking helps ensure compliance with these requirements and reduces the risk of legal issues.

Continuous improvement

Analyzing budget performance provides valuable insights for future projects. It allows organizations to learn from past experiences, identify areas for improvement, and refine their project management processes. You’ll even be better at negotiating and may invent areas that can be improved through frugality.

Steps to help you manage your project budget

There are many different places to start when creating a budget, so if you’re confused, don’t worry. We’ve gathered our best advice (and best templates) so you can hop right in.

1. Choose how you will create your task schedule.

You can use Lucidspark to help you track your project tasks and manage your budget. If you’re in the marketing or agency world, consider a creative brief with budgeting built in. If you’re self-employed or bill per client, there’s a template for that, as well. For anything else, there’s a good ol’ fashioned project kick-off template. 

2. Create your scope baseline

 Determine your original scheduled start and finish dates, then detail your planned efforts. Outline your original estimated costs and your target budget. None of this is written in stone, so if you need to change it as you gather more information, it’s fine.

3. List what resources you need

This is where things get tricky because there are often many resources you hadn’t initially considered. First, review the number of people (teammates and vendors) working on your project. Then, take a look at some real numbers from past projects because revisiting your resource usage helps give you an accurate status of your schedule and budget. Finally, assign costs to your resources and update your numbers.

4. Determine your KPI’s (key performance indicators)

Surprise: Budget cost is a KPI. It serves as a critical metric for evaluating the financial performance and health of a project, department, or even your business as a whole. 

5. Forecast your cost and budget

Because forecasting budget is vital to your project’s overall success, it can be helpful to utilize revenue forecasting software, which can help monitor budgets and streamline the process by creating and maintaining budget forecasts. Develop a range—an idea scenario and a worst-case scenario—so that you are prepared for the worst while hoping for the best. 

6. Start your project and track your progress

 If you don’t have task management software by now, it is time to start using it. It will help you check that tasks are completed on time and help you navigate blockers. You’ll need to communicate with your key stakeholders, such as your team and clients, regarding the status of the project and any adjusted completion dates or budgets.

7. Report how you did in terms of project budget

Look at your KPI’s, report to key stakeholders how successful or profitable the project was, and hold a post-mortem to review the project’s budget.

Tracking your project’s budget is for many reasons, and it plays a crucial role in effective project management. It provides a real-time snapshot of costs compared to the planned budget, allowing project managers and stakeholders to promptly identify potential cost overruns and take corrective actions.

By monitoring budget performance, project teams can make informed decisions, allocate resources efficiently, and mitigate financial risks. Budget tracking also facilitates transparent communication with stakeholders, instilling confidence and trust by informing them about the project's financial health. You’ll find yourself less worried and more prepared for whatever may arise.