Project Budget: Definition, Template & Cost Estimation

The Project Budget is a tool used by project managers to estimate the total cost of a project. A project budget template includes a detailed estimate of all costs that are likely to be incurred before the project is completed.

Large commercial projects can have project budgets that are several pages long. Such projects often have a large number of costs associated with them, such as labor costs, material procurement costs, and operating costsFixed and Variable CostsCost is something that can be classified in several ways depending on its nature. One of the most popular methods is classification according. The Project Budget itself is a dynamic document. It is continuously updated over the course of the project.

Corporate Finance Institute® offers a course on Budgeting and Forecasting that can help you learn more about creating a project budget!

The Importance of a Project Budget

Initially, the project budget allows the project manager to determine how much the project is likely to cost. Throughout the course of the project, it lets the project manager check whether or not the project is sticking to its budget.

Project Budget Example

Below is a project budget example template:

Let us look at the sample project budget template shown above. John is a project manager who is responsible for the completion of Project ABC. John organizes the project in a Work Breakdown Structure format (WBS format). Project ABC has 2 primary tasks. Each of these primary tasks has 3 secondary tasks associated with it. Finally, each secondary task has 2 tertiary tasks associated with it. Project ABC requires the use of labor and capital for its completion. The project budget template has separate sections for labor and capital.

For simplicity, it has been assumed that labor charges a specific wage rate for each of the primary tasks. In practice, wage rates can be different for each of the secondary and tertiary tasks. Moreover, some complex projects may require the use of other resources in addition to labor and capital.

Step 1

Let us look at Task 1: At the start of the project, John estimates the following about Task 1.

• Labor: Task 1, which is a primary task, is going to take 40 hours. Of the 40 hours, 10 hours will be spent on task 1.1, 20 hours on task 1.2 and 10 hours on task 1.3. Of the 10 hours allotted for task 1.1, 5 hours each will be spent on tasks 1.1.1 and 1.1.2. Of the 20 hours allotted for task 1.2, 10 hours each will be spent on tasks 1.2.1 and 1.2.2. Of the 10 hours allotted for task 1.3, 5 hours each will be spent on tasks 1.3.1 and 1.3.2. Each hour of labor is expected to cost $20. Thus, task 1 is expected to incur labor costs totaling $800.
• Capital: Task 1 requires 20 units of capital. Each unit of capital is expected to cost $50. Thus, task 1 is expected to incur capital costs worth $1,000.
• Overall: Task 1 is expected to cost $1,800.

Step 2

Having made the above estimates, John gets to work with project ABC. However, when task 1 is finished, John realizes the following:

• Labor: Task 1 actually took only 38 hours to finish. Task 1.1 took 12 hours, task 1.2 took 15 hours, and task 1.3 took 11 hours. Tasks 1.1.1 and tasks 1.1.2 each took 6 hours. Tasks 1.2.1 and 1.2.2 took 8 and 7 hours, respectively, and tasks 1.3.1 and 1.3.2 took 4 and 7 hours, respectively. In addition, each hour of labor actually charged $25 due to an increase in the market demand for labor. Thus, task 1 incurred labor costs of $950.
• Capital: Task 1 actually needed 30 units of capital for its completion. Thus, task 1 incurred capital costs of $1,500.
• Overall: Task 1, which was expected to cost $1,800, actually cost $2,450.

The same process is repeated for task 2. As can be seen from the project budget template above, Project ABC overshot its budget by $420.

Download the Free Template

Enter your name and email in the form below and download the free template now!

Additional Resources

Corporate Finance Institute offers courses and resources to help you expand your knowledge and further your career. For more information on budgeting and project financing, check out some of the CFI resources below!

• Budgeting and Forecasting
• Project Finance – A PrimerProject Finance - A PrimerProject finance primer. Project finance is the financial analysis of the complete life-cycle of a project. Typically, a cost-benefit analysis is used to
• Budget HeadBudget HeadThe person who is ultimately responsible for the framing and creation of the Budget for a project is known as the Budget Head for that project. The Budget itself is a document that lists the expected revenues and expenditures associated with a project.
• Projecting Balance Sheet Line ItemsProjecting Balance Sheet Line ItemsProjecting balance sheet line items involves analyzing working capital, PP&E, debt share capital and net income. This guide breaks down how to calculate