Planning the budget is one of the big issues when you write the project plan (or a project proposal for a European project). The first step is to identify the estimated costs. A properly working method is to take each work package, identify the costs in the different fields, and summarize them.
In most cases, you may split costs into four main categories.
Labor Costs
Labor costs include all resource costs directly related to salary or costs of working contracts. There exist different methods to estimate labor costs.
- In small projects, you may calculate in hours. Count the effort hours of each resource and multiply by the hourly cost of each resource.
- In large projects, you define the daily costs for special work that is to be done (in European projects, you have four different fields: manager, technician, researcher, and office worker). You estimate the number of days in each field and multiply by the daily costs.
Non-Labor Costs
Non-labor costs cover materials, equipment, and other necessary stuff for the project. That can be
- Hardware and software
Here you have to calculate with depreciation and check the amortization during the project – especially in European projects - Training
This includes travel and subsistence costs (if there is a long-distance venue), the replacement of the person in the organization, and the course or training fee - Facilities
- Equipment
Furnature, flip chart, coffee machine for meetings, … - Material and supplies
- Depreciation (office equipment)
Image: Calculations for budget planning are often difficult to make, full of uncertainty factors, and often associated with risks of incorrect estimations.
Travel and Subsistence Costs
Travel costs always consist of transportation costs, subsistence (hotel, meals), and other related costs (for example the taxi for transporting huge equipment). The easiest way for subsistence is using lump sums (or unit costs, as they are used in the budget of the former Erasmus+ program). The most complex (and work-intensive) method is to collect all bills and run an individual accounting of each person on each travel activity.
A problem is the travel costs, especially if you travel by flight. It is almost impossible to calculate the flight fees1 for a flight between two European cities several months in advance. The current energy crisis in Europe magnifies this problem significantly. This makes the planning of the budget sophisticated.
Subcontracts and other Additional Costs
Special issues that cannot be covered by the project group itself are often done by subcontracting specialists, external experts, or other specialized companies. Here you have to describe the expected performance or output and get offers from well-fitting companies. Now you can take these offers into your budget as fixed expenses.
In many European projects, external evaluators are subcontracted and paid by the project’s budget.
Problems of budgeting
One of the most frequent problems is the correct accounting of the miscellaneous costs. Each project manager must be aware of the accounting rules in his own company (and also in the country) to make sure the labor and non-labor costs are allocated correctly and balanced properly.
A second item is features that were not included in the specification. You as the project manager must be aware that some budgets should be earmarked for such surprises.
ERASMUS+ Projects (starting with 2022)
In the new programme, the well-known lump sums of the former ERASMUS+ run are history: You have to develop the project budget from scratch. This means that you may calculate (and estimate) all costs matching the current conditions. There will be differences in the calculation of flight, as well as different cost levels in European countries for hotel and subsistence (that must be considered). This new situation will be a challenge for future project applications!
The positive changes are that the project manager is more flexible in the handling of the budget.
Besides the budget issues, the new Erasmus+ projects do not use timesheets. The new approach is to calculate working time on a success basis (“How much money do we need to reach the expected result or aim”).
Conclusion
It’s clear that a client or your company (institution) will be much happier if your project comes in below budget than over it. Therefore, be a little generous in planning and calculation, so you have the budget and – in cases of unforeseen surprising cost – be able to shift money in the frame of the budget. To cover this risk, you should calculate 20 – 30 percent of the total project costs. Planning a budget is a responsible and delicate work process!
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1 A useful platform for finding flights is CheckFelix.