The terms “project costs” and “project budget” are often thrown around loosely during the project planning stages. While some believe that the two terms are interchangeable, others know that there is a difference between the two. It is important that the project manager understands the meaning of these terms and knows how to use them properly to avoid any confusion when managing the project and communicating with company executives about the progression of it.
The term “project budget” refers to a budget that shows how the money given for the project will be spent. It breaks down the financial details about the expenses and purchases needed to make the project a success. The budget will show employee wages, machinery purchases, supplies, tools and rent for temporary office locations, for example. In other words, the project manager will be able to account for every single penny spent on the project.
The term “project cost” refers to the total sum the project in question will cost the company. Executives use this figure to make changes in the company’s other budgets, such as operational budgets, master budget and expense budgets to make room for the project in question. The total project cost is calculated by adding up the total costs in the project budget, so the business owners know how much to put aside.
Project Development and Changes
The overall project cost plan is affected if the project budget is adjusted during the development and execution of the project. For example, the project may be affected by unforeseen circumstances like bad weather conditions or the lack of work force in the field. The budget may change if machinery breaks and needs to be replaced. If the budget changes after it has been approved, the overall project cost plan is also adjusted.
Using the Costs and Budget
Company executives will keep the originally planned project costs and the final project costs for future planning. The difference in costs will show where the planning had flaws, which is beneficial for future projects. It is also useful in terms of risk management and prevention measures, so the budget can be more accurate for future projects or tasks.