Automating your budget is a smart move, trust me and others who use it.
You might feel that your company doesn't need it right now. But sooner or later, processes will become complex. It's a natural consequence of scaling a business.
Why not start now and prepare yourself for this year?
Keep on reading to learn what project budget management software is, what you can gain from it, and how it works for an IT services company like yours.
Why automate your budget in the first place?
By implementing a solution that handles the budget for you, you win in several key areas:
Accurate budget estimations
Your estimations will be more accurate since the software eliminates all the mistakes that might crop up during the process. You will never overestimate or underestimate your project costs ever again. Your profit margin will reach the exact level you predicted. Sounds like a dream, right?
Automation saves your time
By automating all the budgeting tasks, you simply get more time to invest in more mission-critical areas of your business, such as strategy.
Collaboration and transparency
Budgeting software that displays information to all the project stakeholders is also helpful in building transparency across your business. It leads to better collaboration with your project managers because they're no longer have to contact you and ask the same questions every day. They can easily see everything inside the system.
Reporting to people in different departments is going to become easier as well. A budgeting solution generates a report in just a few seconds. You don't have to manually pull data from multiple spreadsheets or combine data from different software tools.
If these benefits don't convince you that automating your budgeting it's a good idea, I don't know what can!
But if you have any doubts about how budget management software works, keep on reading.
How does product budget management work for an IT company?
In its essence, project budget management is the process of estimating everything that you need to realize the project. But this is just the tip of the iceberg. It's also about setting certain limits and thresholds for spending and managing the spending throughout the project duration.
Budgeting is a continuous process, not a one-off task. It's something you need to take care of before the project starts, while it's being developed, and after it has been completed.
Most of the time, you will have to invest your time in tasks like:
- Defining the budget – identifying the resources you need (resource planning), setting your budget, and forecasting your requirements to make sure everything works together.
- Tracking and managing the budget – this is something you do during the project, including managing the timelines for handling labor costs.
- Updating the budget – If you notice that your project is developing in a different way than you expected, you need to update your budget to reflect the changes.
5 common budgeting methods and how you can automate them
1. Bottom-up estimation
This is probably the most common type of estimation of the tech industry today. And there's a good reason behind that - it makes your estimations more accurate and helps to eliminate all the errors that come from oversight or not having enough details about the project.
In bottom-up estimation, you estimate individual parts of the project first and then add them up to create the final estimation. This means that you need to break the project down into smaller work chunks (tasks, product phases, or milestones).
A project development software can help you here by automating estimation. Once you break your work into smaller parts, you can start assigning people to them and understand how your specialists' hourly rate rates fit the client's budget.
You won't have to carry out these simulations manually – the solution will do that for you. All you need to do is try out different scenarios and see how the profitability of your project changes depending on your choices.
Then you get a long-term view to check if that level of profitability will remain a month or even a year from now. You can get a more accurate answer because the software will also estimate organizational overhead costs for you.
You will never get a nasty surprise and lose your profit margin because of opening a new office in another location a few months from estimating the project.
2. Top-down estimation
In this type of estimation, you start from the top - you figure out the total number of hours required to complete the project and then split them into tasks or milestones. You basically begin with the total project budget and then understand whether it's enough to cover all the work required to bring the project to life.
This type of estimation is commonly used in the fixed price model - for smaller projects that have a very well-defined scope. Since the available resources will be set in stone, your job is to ensure that the project can be realized within these boundaries (and at the same time get you a decent profit margin).
Project budget management software can help you to understand the scope of work better and use historical data to improve your estimations. This type of software allows comparing plants to reality, so every time you finish a project, you can check where you went off the mark and by how much.
Such insights will make every future estimation easier. Without this type of historical data, estimating the budget top-down is going to be really challenging.
3. Analogous estimation
You have managed several project budgets already. You know what works and what doesn't.
Now you can now use this knowledge to create new projects. Historical data stored in your project development software will help you be more accurate in your estimation process.
For example, in Primetric you can easily duplicate the project and create another one that has similar tasks in it. All you need to do is adjust it to match the requirements of your current project. Then you can use it to create a more accurate estimate of the new project at hand.
4. Parametric estimation
In this type of estimation, you use data and product variables to estimate the total budget. This method is more accurate than analogous estimation because it uses the cost variables and data points from specific parts of your past projects.
But again, you need access to this type of historical data. The historical data and simulation capabilities of your budgeting software will make this easier.
5. Three-point estimation
Consider the best, the worst, and most likely case estimates to create your average budget.
This is one of the most pragmatic techniques for estimating a project budget that takes the average of these scenarios. It's an interesting technique because it forces you to look at the project from multiple angles.
Again, supporting this type of estimation with solid data and insights coming from your budget management software is a great idea.
How project budget management software can help you
By using automation, you will no longer have to dedicate so much time to estimating, managing, updating, and controlling your project budgets.
Instead, you can focus on optimizing your activities, increasing your capacity, or just closing new deals.
Budgeting software opens the doors to experimentation, allowing you to try out different combinations of resources before assigning them to the project. It also gives you the confidence that developer rates with overhead costs fit the budget and bring you a nice profit margin.
Since automation frees a lot of resources, it builds your competitive advantage and speeds up your processes.
If you'd like to see what automation looks like in action, book a demo with me, and I'll give you a tour of the Primteric budgeting features to show you how easy budgeting can be if you use the right software for it.