- Believe it or not, the phrase,
when in Rome do as the Romans do,
is particularly relevant when building a project budget.
How you develop your project budget can vary
from one organization to another,
and here are factors you need to consider
when making your project budget.
The first is how your organization categorizes capital
versus operating costs.
Capital spending typically includes buildings, software,
or other facilities
which are the things that have been used
for an extensive time.
Operating costs are for things needed
to run your business daily or weekly.
Examples are utility costs, wages,
office supplies, and repairs.
Asset depreciation is usually categorized
as operating costs.
Rules for capital
versus operating costs vary from country to country.
Make sure you understand your organization's practices.
You should break your project budget down
into capital versus operating costs.
The second consideration is knowing when your team
will be released from the project.
This may seem simple, but don't be fooled.
I'm aware of organizations that assign staff members
to perform business analysis.
Then those same staff members stay with the project
until the full business benefits are realized.
The time team members spend
on your project must be captured in your budget.
The third consideration for building your budget
is understanding how the project's viability is measured.
Some organizations use the metric
of time the project breaks even,
and that's the time it takes for project benefits
to catch up to the money spent to deliver the project.
Other organizations use net present value, or NPV.
NPV is the difference
between the present value of cash inflows
and the current value of cash outflows over time.
With NPV, you look at the cost of money compared
to the value of money when benefits are realized.
This considers the interest costs for borrowing money
if needed and the impacts inflation can have
on the benefits the organization receives from the project.
In other organizations, project justification may be based
on reducing the risk
or staying competitive in the marketplace.
Finally, it's helpful to understand how
the money will be earmarked for the project.
In most government organizations
this happens through an annual budget allocation.
Others might allocate the total forecast cost
at the beginning of the project.
Still others make a quarterly allocation as results occur.
This last approach is more common in agile projects.
In the exercise files, I've included a more extensive list
of organizational considerations when building your budget,
so ensure you understand the organizational standards
for building your project budget
if you're in Rome or anywhere else for that matter.