To establish an accurate budget, ultimately you should list all the things that need to be done or purchased to complete the project and gather accurate costs for each item. This work is normally quite involved, with a project manager/engineer taking the lead.
We would take the Project Scope Document (as mentioned in Q1) and expand this to create a Detailed Scope Document and detailed activity list (Work Breakdown Structure). This activity should be completed in coordination with all stakeholders and will define everything that needs to be done. We suggest these documents are formally agreed by the key stakeholders so they take some accountability for their content. Next you need to define how things will be done, this will include agreeing (or drafting) specifications and identifying who can service each activity. You will also need to work out the project timings (Project Schedule) as people involved will need to understand this aspect in order to create an accurate cost.
All of the identified cost elements now need to be quantified; some activities may be done by internal people and it is likely many will involve external organisations. In all cases the people providing the costs should be working to the documented specification and schedule. We strongly advocate validating the integrity of all suppliers to minimise the risk of being provided with an inaccurate cost estimate. We also advocate competitively tendering for external works to ensure you get the maximum value for each element.
A project budget should also include a contingency to allow for unforeseen items. Sometimes things change as a project progresses so we suggest making an allowance for this in the submitted project budget. To be clear, the budgeted costs should be 100% accurate against the circulated scope, so this contingency will allow for changes or unforeseen items. When a project has been fully engineered and costed, we typically include a 10% contingency on top of all gathered costs. This percentage should increase if a project is not fully engineered or accurately costed.
It is vital that an accurate project budget is identified as early as possible in a project as this normally directly impacts its financial viability.
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