A financial plan is needed before embarking on a project.A project financial plan identifies all the costs associated with a project.The costs are tailored to fit within the financial resources available for the project.The project financial plan outlines what can be spent on each area of the project to make sure it stays on budget.There are a few things to know before creating a financial plan.
There are two ways to create a project budget.The top-down approach refers to projects where the total allowable cost is known before the project starts.The project budget has to be within the costs.If you own a construction business, a large organization approaches you to see if you can enlarge their parking lot.At which point you need to decide if you can do it or not, they may tell you that they have $500,000 to allocate to the project.A budget that costs less than $500,000 is required in the top-down situation.
Step 2: Understand the bottom-up approach to budgeting.
The alternative to the top-down approach is the bottom-up approach, which means figuring out what every part of the project will cost, and then adding it up to determine the total.If a customer approaches you to re-build a parking lot, you could use a bottom-up approach.The total cost would be determined by considering everything that is necessary for the project.By figuring out what every piece will cost and then calculating a total, you can determine the cost of the project.In the top-down approach, the cost is determined by available resources and you have to work within those limits.
Step 3: The approach is for you.
You may need to use a top-down approach if you have to work within someone else's budget.If you have complete control over the project, you can choose an approach.The top-down approach ensures that a project is completed within available resources.If your organization has $1 million to spend on projects for a year, you can state that the new parking lot construction project must be done for under $500,000.The reduction of waste can be achieved by these limitations.If you have limited resources, this approach is helpful.If you are running a project, you can dictate to all the parties how much they can spend.Each party will not be creating their own budgets.The bottom-up approach can be very accurate.The project can be cost based on what the project needs without an immediate limit.If you are building a new parking lot, each member of your team will have to come up with a budget.The approach can lead to cost overruns.
Step 4: The project needs to be discussed with key stakeholders.
You will need to discuss the project with key project members regardless of the approach you choose.Knowing the needs of the project will allow you to figure out what the costs will be.The scope of the project defines the requirements and limits of work to be done.If you are approached to build a parking lot for a large organization, they will allow you to cost the project or provide an estimate.Discuss their needs and timelines with you first.They might say they need a new lot with 100 spaces built in three months.You will need to cut down trees, blast rock, and build a new lot after you survey the site.You will need planners, people to blast and cut down trees, and construction workers to build the lot from this.
Step 5: Determine what your costs are.
These are the main costs to complete the project.Labor, equipment, and materials are included in core costs.The majority of project costs will come from these components.If you are constructing a parking lot, you will need laborers and contractors to do the work.You will need materials like asphalt and wood, and equipment like jackhammers andtractors.Scheduling resources and expenses can be made easier if you know the timelines for the project.If the project is three months, you will need to pay labor for three full months as well as rent equipment for that period.It is possible to determine costs by consulting with your team and contacting suppliers.If it is a large project, you can ask the construction foreman what he needs in terms of labor, material, and equipment.You can choose the most appropriate quote after contacting suppliers.You will have to determine legal and owner-established limits.What is the minimum wage for different types of work, and what is it?What are the legal requirements when it comes to scheduling, and are there any additional rules you want to establish?
Step 6: Non-core expenses should be considered.
Many projects go over budget because they don't include non-core expenses.You need to think about all the things that aren't labor, materials, or equipment.Consider things like travel, insurance, legal advice, accounting, fuel, food/drinks, and extra telephone/ internet bills.You should put a number to each indirect cost.If you need to estimate, always assume it will be on the higher side.Consider how long you will need the service for and how much it will cost.If you need to set up internet at the work site, you may need three months of internet for $100 per month.
Step 7: You can reduce your risk by adding a reserve.
Extra money should be added to your total costs if your cost estimates are too low.Often times projects are delayed, issues occur, or items cost more than was originally planned.How much you add depends on how accurate your budget is.Add 5 to 10% as a reserve if you need to estimate or confirm certain aspects of your budget.
Step 8: To record your costs, create a table.
All your information is recorded in the final part of a financial plan.You can open up Microsoft excel and create a table with four columns.They would state Expenditure, Cost, Running Total, and Notes from the left to the right.The name of the expenditure would be listed.Construction laborers or tractor rental.How much the expenditure cost is shown by the cost.The total cost would be indicated by the running total.The running total in the second row would be 20 if the first row had a cost of $10.Special things to remember about the expense would be included in the notes.Labor can be considered as one category, but it is better to break it down into tasks performed and wages paid.The foreman of a crew is usually paid more than the welder.The foreman, specialists, welder, consultants, and other construction workers may be grouped together in one expenditure category.