Project budget forecast: everything you need to know

To set yourself apart from your competitors, resource management is paramount in project management: by optimizing how you use your resources, you'll achieve more with the same means!

And the budget forecast is a major asset for resource management: it gives you detailed visibility over all of your project's income and expenses. With it, you can anticipate the obstacles you might run into and set a course for your project! Of course, the budget is an integral part of the project charter.

Here you'll find the best practices for preparing the budget forecast of your upcoming project — no need to be a chartered accountant or a banker to do it!

What is a project budget forecast?

Building a budget forecast is essential when you want to launch a project: while it can help convince senior leadership or investors that your project is worth funding, it will in any case give every party involved in the project visibility over its entire execution.

A realistic project budget forecast describes, as precisely as possible, the expenses and the income that will be attached to your project. One useful trick is to look at similar projects run by other companies through market research, so that your budget projections match future expenses and income as closely as possible.

Of course, if this isn't the first year you're running this type of project, you can rely on your figures from previous years to build your budget.

Your forecast can live in an Excel spreadsheet, or in a dedicated accounting tool that gathers your projections on a collaborative platform.

Why build a budget forecast for your project?

Anticipate and adjust your project

The primary purpose of a budget forecast is to increase your visibility over your project's future — in other words, to anticipate your project management!

Indeed, building your project's financial forecast is one of the best ways to assess its feasibility. You'll be able to calculate the profit margin you hope to reach (or at least break even) and adjust your strategy if you realize your business plan or your financing plan doesn't hold up.

Another tip: you can even build several budget forecasts representing the different scenarios you're considering, factoring in the contingencies you can imagine (supply issues, new competitors reshaping the market…)

Stay on course throughout the project

Your budget forecast will be a formidable decision-making aid as the project moves forward. Indeed, your budget lets you check, month after month, that you're not drifting too far from your initial strategy and that the decisions you've made have had the impact you expected.

The budget forecast is therefore a highly effective project tracking tool to verify that you're sticking to what you planned: it's a guide that shows the course you intended to follow!

A powerful ally for your management

A project budget forecast can also be a useful lever for managing your teams as a project leader. On the one hand, it can show your teams that your means aren't unlimited, or that they've spent more than originally planned, in order to convince them to be careful.

Conversely, building an ambitious budget forecast will have a strong engaging effect on your teams. They'll feel energized to take part in a project with that level of resources, which will boost their motivation.

The budget forecast is therefore a weighty argument to back your decisions with your teams.

How to prepare a budget forecast?

Take stock of your resources first

An essential prerequisite: to build a budget forecast, you need to list all the resources at your disposal. That means material and human resources, but also the time (number of days) you have to see the project through.

Break your budget forecasts down

For long-term projects, it's best to calculate your budget by breaking it down month by month. There are several reasons for this.

First of all, it's often easier to forecast your monthly expenses than your annual ones: the margins of error will be smaller!

Next, monthly budgeting gives you a better ability to anticipate: if you force yourself to budget every month, you'll have to be more precise about the time you allocate to each task.

What's more, going monthly takes nothing away from you. We're not telling you anything new when we remind you that, to build your annual budget, all you have to do is add up the budgets of each of your 12 months.

Involve your team members in building your budget

If you want to forecast your expenses and income effectively, it's essential to involve the people most directly concerned: your team members. It's far easier to land on the right amounts by calculating them with the people who will work on the project day to day.

Each of your team members will be able to give you a precise idea of the scale of the income and expenses tied to the tasks they're responsible for.

You're likely to end up with a budget forecast far closer to reality by asking your team members about their areas of expertise than by handing the entire budget over to a consultant.

On top of that, you'll get much stronger commitment from your teams if you involved them from the moment the project budget was designed.

Take care to estimate your expenses properly

There's no point inflating your expenses. Don't overestimate them — it's not a good idea. You can keep a very slight safety margin if you're afraid of exceeding the amounts you've planned, or if the sums are genuinely hard to predict.

On the other hand, it's strongly recommended to set aside a reserve for the year in your cash-flow plan so you can deal with the unexpected.

Likewise, avoid underestimating your expenses. Costing a budget too tight for the tasks you have to accomplish will force you to prioritize between the tasks you had planned — which will inevitably create tension within your teams.

Avoid underestimating timelines as much as possible

Underestimating your timelines means making your teams work longer than planned — and therefore blowing up the project's budget forecast.

Numerous studies have shown that people are commonly too optimistic when estimating how long a task will take. So ask your team members how much time they think they need to complete their assignments, and add a safety margin as a precaution (often between 20 and 30% depending on the person).

A budget forecast isn't static: make it evolve!

While you have no choice but to try to predict reality when building it upfront, there will come a point where your assumptions are confirmed or proven wrong. When, during your project, you get more information about the expenses and income you're going to face, use it to rework your budget forecast!

It's therefore advisable to review your actual expenses and income every month, and compare them to your financial projections. Important: when you correct your budget forecast mid-year, remember to keep the previous version — it will keep you from losing your bearings, and it will also be very interesting to look back on once the project is well underway.

To go further, find out how to build a project budget without slipping up.

Finished building your project's budget forecast? You can now add it to your project charter.