## Budget Planning and Financial Forecasting for Your Project

One of the most critical elements in budget planning for project implementation is the requirement for cost savings without compromising the final quality. Abandoning cost-saving measures will lead to the allocated funds being spent before the completion of work, creating risks in meeting deadlines. Practices show that, in most cases, clients refuse to revise the project to increase costs even with a motivated justification. For startups that cease operations, mistakes in assessing their own capabilities and insufficient funding are the main reasons for failure.

How then to ensure an optimal balance between planned implementation expenses and actual costs?

# What is a Project Budget?

Begin by defining what a budget is. A budget is the sum of expenses necessary for the implementation of a project. This document provides answers to questions about the extent, specific goals, and timing for spending certain amounts.

It’s necessary to understand that any project entails not only the necessity of spending funds but also the existence of specific time frames for its implementation. As a result, financial calculations are made for a limited time, and the budget in this case is fixed.

Attempts to make changes outside the initial plans are likely to end in failure.

Budgets are formed at the stage of contract signing or creating the execution team. Even before startup, there’s a clear understanding of which funds need to be spent. Any later changes will require approval, which is extremely difficult and problematic.

The budget includes:

• Personnel costs, including hired specialists not on staff.
• Infrastructure expenses, such as purchasing software licenses and paying for cloud services.
• Expenses related to purchasing/renting premises, organizing staff workplaces.
• Payments to suppliers for materials, components, and other goods needed for activities.
• Potential risks categorized as “unexpected expenses,” requiring certain financial reserves.

# Features of Budget Planning

Most of any budget always consists of mandatory expenses, which are cost categories that cannot be excluded. Reducing such expense items can negatively affect the quality of implementation or the execution timeline.

Mandatory payments include:

• Developer salaries.
• Office, production, and other premises rentals.
• Payment for software licenses.
• Procurement of production equipment, office equipment, furniture, etc.

Each of these points has its own options. For example, offices can be owned or rented on a turnkey infrastructure basis.

During the expense calculation process, a list of project requirements is used, which clearly outlines all aspects that need to be implemented with specific deadlines.

For instance, to launch an online store based on a cloud service, you need to pay for a platform subscription, purchase a ready-made store template according to its direction, and pay freelancers to populate the site with content. On average, the total budget will be between $400–$800.

If the requirements are slightly adjusted, the project launch cost will significantly increase, even up to $10–$20 thousand. Server equipment rental, software license purchases, CRM system implementation, search engine optimization, and more may be required. Consequently, work will stretch not just a couple of weeks but several months.

Additionally, it’s necessary to consider mandatory expense items like tax payments, salaries for accounting, legal services, IT specialists, and other personnel responsible for project support.

# Risk Planning

Any endeavor can encounter unforeseen expenses, and starting a new project is always riskier than working within an established process.

To compensate for potential risks, they must first be identified and classified. For each risk, an assessment is necessary, including:

• Probability of occurrence.
• Degree of criticality for the project.
• Problem-solving possibilities.
• Potential expenses if the risk materializes.

For example, there’s no insurance against a project lead leaving during its implementation. With an experienced employee fully satisfied with their conditions, the risk is minimal. However, for newcomers or employees actively seeking new job opportunities, the risk is significant. Accordingly, potential expenses for quickly finding a replacement must be accounted for.

Risks can arise within the company or have external sources, but in any case, standard risk management must be applied.

# Features of Working with Risks

Standard planning does not account for risks, so additional expenses always come as unexpected to the payer.

Risks need to be accounted for and preliminarily calculated for their potential magnitude. It’s advisable to reserve funds in the budget for the most probable risks.

Risks entail the necessity of overpaying for events whose occurrence is not confirmed. However, if a risk materializes, the budget will cover the necessary amounts.

If reserved funds remain unused, they can be used for project support, compensation payments, or refunds to the client (the procedure may encounter legal complexities).

Excessively high expenses for covering risks can become a reason for the client to refuse project implementation. Therefore, when forming the budget, it’s essential to maintain an optimal balance of interests.

# Profitability

Any commercial activity aims to ensure profitability. Having a project with zero results makes no sense. If personnel salaries, including top management, are part of the project expenses, investors are exclusively interested in earning profits from the invested funds based on project implementation results.

The level of margin largely depends on the product’s industry affiliation, investor interests, and other factors. On average, margin indicators reach 30–40%.

It’s essential to understand that the occurrence of risky events leads to unforeseen expenses, the coverage of which will primarily be ensured by the margin component. If revenue losses are substantial, investors may find themselves entirely without profits.

# Discounts for Clients

A widely adopted practice when signing a contract is the client’s request for a discount, usually ranging from 3–5%. These potential losses should be immediately accounted for in the budget so that, in the case of providing a discount, the executor incurs no financial losses.

If the client does not negotiate, the executor gains additional income.

# Project Budget Evaluation

During the project evaluation process, various criteria can be used:

• Time-oriented.
• Expense category-oriented.
• Work type-oriented.

There are also options with qualitative metrics or probabilities.

To ensure the most accurate budgetary planning, it’s advisable to divide the total scope of work into segments:

• Concept creation with an allowable error of no more than 25–40%.
• Justification, providing more detailed cost breakdown.
• Negotiation stage with final detail clarification and an error margin of up to 10%.
• Project documentation and subsequent error reduction to 5%.
• Practical project implementation with obtaining initial results.

There are different approaches to budget planning, varying in efficiency:

• Analogous estimation. Used when creating continuous projects with identical solutions. In this case, budget deviations will be minimal, and approximate costs are predetermined for typical operations, allowing sufficient accuracy in final results at any stage.
• Expert estimation. Used when there’s a lack of in-house experience in appraisal work. For each subtask, the opinions of experts with the necessary skills and competencies are identified, allowing them to accurately determine the expected expense levels for operations. The total budget is then determined by summing these operations.

# Forming the Project Budget

Budget planning fundamentally differs little from general planning.

During the concept analysis process, a list of stakeholders is formed.

A list of requirements presented by stakeholders to the project is compiled.

For each requirement individually, a set of necessary resources (time, labor, material) is established.

If there’s a need to use resources belonging to third parties, market analysis is required.

For each subtask, clear implementation deadlines with the necessary sequence of execution are established.

Practice shows that during time estimation, a 6-hour workday should be assumed. This is because a person is physically incapable of maintaining maximum productivity throughout the entire workday.

A list of risks is formed, with each risk indicating the probability of occurrence, possible consequences, and the necessary amount of financial reserves.

Planned project profitability indicators are established, and discounts to the client are factored in (if provided).

After this, the project budget can be considered ready.

# Conclusion

Budget planning for an upcoming project largely depends on accumulated experience and existing practices in this field. Practice shows that project estimation in a new activity direction often involves difficulties in accurately determining forthcoming expenses and creating an objective budget.

Any project involves the interconnection of cost, quality, and execution timelines. Therefore, ignoring this condition is inadvisable. Striving to artificially lower work costs will inevitably affect quality or execution timelines, while prolonging execution will lead to increased actual implementation costs but simultaneously create prerequisites for better execution quality.

As a result, there are three main criteria, from which you can emphasize only two simultaneously—achieving all three parameters is impossible. You can’t build a house quickly, with quality, and cheaply at the same time.

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