How Does a Project Budget Become a Communication Tool?

9 Dec, 2022 | Read in 5 minutes

A project budget is not just a tool to control the costs of a project. It is also a communication tool to share ideas and adjust the scope of work as necessary.


The project manager's primary responsibility is communication. Additionally, as the project manager, your budget and timeline are frequently your strongest tools for communication. They help you communicate the progress of your project to your team members as well as to external resources like your clients and executive management.

It's not a secret that a good budget is key to managing a project well. Staying on budget is one of the three most important parts of a successful project. The other two are finishing on time and staying within the project's scope.

According to Wellingtone annual report, only 34% of organisations say they always or mostly finish projects on time and within budget. This is less than last year when 43% of organisations said they usually finished projects on time and within budget.

So, let's dig deeper into the definition of a project budget, why it's so important, how a project budget becomes a communication tool, and how to create a project budget.

The definition of a project budget

According to, a project budget is the sum of all the costs related to a project's tasks, activities, and suppliers. It is a single number that all stakeholders and participants agree to adhere to once project deliverables are completed. A project budget can also be a document that specifies how that magic number will be spent.

Managers and stakeholders can better track and control project expenses by determining how the project team will allocate spending across tasks and activities. Before beginning your project, you should decide on your budget. Unless the project requirements alter, you won't be able to increase your budget in most circumstances.

In fact, a survey by the Project Management Institute found that in 2021, only 62% of their projects were finished within the original budget. So, budgeting before you start your project allows you to scope work and keep costs under control.

Why is a project budget so important?

A project budget is an essential communication tool. It facilitates open communication between the project team and important stakeholders.

You can use your project budget to keep track of how your actual costs compare to your expected costs as your project proceeds. Moreover, you will need to communicate this information to the stakeholders in your project. And if the project requirements change, your budget may need to be adjusted to reflect the new costs.

Here are a few more reasons why a project budget is important:

  • A project budget reflects the progress and success of the project.
  • A project budget allows secure funding.
  • A project budget enables companies to operate efficiently.
  • A project budget provides insight into future project costs.

How a project budget can be a communication tool

The project budget describes the company's financial commitment and is used to guarantee that project expenses are kept within budget. When deviations occur, they often cause scheduling issues as well.

The project budget also gives you an idea of how risky your project is. Any change in the company comes with risk, and when time and money are spent, the decision to move forward is based on a risk assessment. Management and stakeholders will move forward with the project if it ensures that the risk is worth it and if the outcome justifies the risk.

So, when you propose a project, you should communicate the risks and possible rewards. Approval will be given if you can show management that there's a good chance that future profits will cover this investment within a reasonable amount of time.

5 simple steps to create a project budget

Aligned with the Project Management Book of Knowledge guidelines on project budgeting, we've compiled 5 simple steps to create a project budget.

1. Make a list of your project tasks and deadlines

As a PM, you must have a clear understanding of the goals of your project before you can estimate expenditures for your project budget. Examine your project plan to determine the tasks, milestones, and activities your team must carry out. To make sure everyone is on the same page, you can also work together with the project team or other stakeholders.

2. Estimate the cost of your project

It's time to calculate the cost of your entire project now that you have a list of project expenses. There are two ways to estimate a project budget, namely top-down or bottom-up.

Top-down budgeting establishes an overall budget amount for the project and divides it into tasks and activities. While bottom-up budgeting determines the overall project budget.

3. Finalise the project budget

As a Project Manager, you must finalise the project budget with the key people involved once the budget is clear. It may be necessary to obtain formal permission for your budget from people up your chain of command, but it's also important to get your stakeholders and budget managers on board. In this approach, you can seek input on particular budgetary items to make your project operate efficiently.

4. The project budget monitoring

It's crucial to constantly check the project budget. By comparing actual costs with estimated costs, you can spot issues like scope creep or overspending early on. It will give you enough time to do modifications without impeding the development of the project.

5. Review and keep your project budget report

Even though you'll be monitoring your budget throughout the project, it's still worthwhile to review it when it's finished. Discuss your success and failure at the project budget review. In order to use your final real budget for future project budget estimation, ensure that it is appropriately stated in your budget report.


Creating and managing a project budget allows you to keep track of and control your expenses during the course of a project. On a basic level, the budget for the project you want to run can be used as a communication tool to share ideas with your team, management, and stakeholders.

Both the stakeholders in your organisation and the management are concerned about the budget and financial performance of your project. Hence, a project budget is a powerful communication tool when managing a project. If anything goes wrong in a project, it will impact all people involved.

Making sure your project budget is well estimated and getting all key people on board are things you will need to accomplish as a PM. Using a project management tool like VirtualSpace will enhance your communication between teams and stakeholders. It will also allow you to keep track of your project so that you can assure your project budget stays on track.

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