Planning 3 - Budget and Procurement
Google Project Management Certificate · Course 3: Project Planning - Putting It All Together
Having built the project plan and estimated time, the next thing to pin down is money. A project budget is not just a number the company hands you; it is a deliverable in its own right, a success metric, and the main tool you use to tell stakeholders exactly what is needed and when.
This module runs in two halves. The first is the budget: what goes into one, how to build it from the bottom up, the vocabulary finance will expect you to speak, and how to keep the thing alive once the project starts spending. The second is procurement: getting the materials, services and vendors the project needs from outside the company, plus the contracts, legal review and ethics that come attached.
The two hands-on activities sit at the end of each half - building a project budget in a spreadsheet, and writing a statement of work for a chosen vendor.
What a project budget is
Section titled “What a project budget is”A budget is broken down by milestone, with the activities and tasks and their associated costs listed underneath, so the right expenses land in the right period. That makes the budget a forecast: a cost prediction over a stretch of time, reviewed frequently and evolving as the project does.
Typical contents: labour, operating costs, and the cost of obtaining necessary materials such as hardware, software or equipment.
Why it matters beyond saving money:
- The budget is a deliverable and a success metric, not just an accounting chore.
- It is a communication tool - it tells stakeholders what is needed and when.
- It directly affects the company’s financial viability.
- Budget and milestones go hand in hand, so you need to know it inside out even when you do not own it end to end.
Who owns it and who signs it off
Section titled “Who owns it and who signs it off”Ownership of the budget and of vendor relationships varies with company size, support team and org chart, so you will not always be the sole creator. What you will almost always do is obtain approvals for spending. Most companies have a signing or spending policy setting out who has authority to commit resources or incur costs on the company’s behalf.
Once cost estimating is done, the project sponsor or another key stakeholder reviews and approves the estimates, adjusting or reallocating funds where needed. That could be the CEO or COO; in the running Office Green example it is the Director of Product. A sign-off from finance is usually needed too.
Budgeting also runs alongside scheduling, because the scheduling steps depend heavily on costs.
Over budget and under budget are both bad
Section titled “Over budget and under budget are both bad”Going under budget looks like a win but is read as less than satisfactory project management: you estimated badly, you could have bought more resource or better quality, and the company will assume you can run the next project on less. Publicly traded companies and public sector bodies report financial performance to shareholders or auditors, so drifting far either way changes how the company budgets next year. In short, you have to show the requested money was used to secure funding for future projects.
What goes into a budget
Section titled “What goes into a budget”You cannot simply declare a budget. If the market rate for a project of that calibre is $2,000, deciding to spend $200 does not make it so. Four things you must actively account for:
| Factor | What it means |
|---|---|
| Understand stakeholder needs | Know exactly what they expect; the sponsor needs the project to land at a cost that still turns a profit |
| Budget for surprise expenses | Planters that arrive cracked, through nobody’s fault, still have to be replaced |
| Stay adaptable | Shift money between resources and categories as reality bites |
| Review and reforecast | Build a separate revised budget based on how the project is actually tracking |
Reforecasting is how you recalibrate. If you overestimated plant costs from the vendor and underestimated the marketing spend for the launch, you reallocate those dollars.
Four cost factors to apply
Section titled “Four cost factors to apply”| Factor | Definition |
|---|---|
| Resource cost rates | The cost of each resource - labour, tools, equipment, materials, software |
| Reserve analysis | A method to check for remaining project resources; review all potential risks and decide whether buffer funds are needed |
| Contingency budget | Money included to cover unforeseen events not accounted for in the cost estimate, compensating for uncertainty in cost and time estimates and unpredictable risk exposure |
| Cost of quality | All costs incurred to prevent issues with products, processes or tasks - prevention, appraisal, internal failure and external failure costs |
A project can be derailed simply because the PM did not put enough money into reserves or buffers. Cost of quality extends beyond materials: redesigning a defective product means refunds, plus the time and money to build the replacement.
Direct vs indirect costs
Section titled “Direct vs indirect costs”| Direct costs | Indirect costs (overhead) | |
|---|---|---|
| Definition | Items necessary to complete the project | Items that do not directly complete the project but are essential for the team to work |
| Examples | Wages and salaries of employees and contractors, materials, equipment rental, software licences, project travel and transport, staff training | Administrative costs, utilities, insurance, general office equipment, security |
Building the budget
Section titled “Building the budget”Five techniques stop you over- or underestimating.
- Historical data - review past projects like yours to see what previous PMs got right and wrong. The more experience you gather, the more data you have and the better your estimates.
- Leverage experts - to leverage means to use something to maximum advantage. Ask colleagues who ran a similar project. If you ask someone outside the company, share no confidential information.
- Bottom-up approach - think through every part of the project start to finish and list every material, resource, contract worker or anything else with a cost attached, then add it all up. Ask candidate vendors for quotes to get rough figures.
- Confirm accuracy - double-check everything before it goes anywhere.
- Set the baseline - the dollar figure you measure against to tell whether you are on track and to judge project success.
The bottom-up sequence in practice
Section titled “The bottom-up sequence in practice”- Break the project into tasks. For Project Plant Pals that means hiring designers and developers to build the website and app.
- Estimate the cost of each item. Negotiate employee allocations and contractor rates, and shop around for vendors and delivery services to assign a cost estimate to each task.
- Add material costs. Equipment for team members and stakeholders, workplace modifications that accommodate an employee with a disability, hardware and accessories for remote workers, computers, launch-related software, storage space for plants or supplies.
- Add miscellaneous. Additional items not covered elsewhere - usually minor, or one or two of a kind, not a major budget line.
- Add fixed costs. One-time costs that will not change, such as roughly $50 to post the web developer role to a job board.
- Add travel and meals as their own line item.
- Add buffers and reserves. Office Green sets aside five percent of the overall budget as buffer. That is standard practice; raise or lower it depending on how much you already know about the project. The client must be aware of the buffer so that, if spending becomes excessive, you can problem-solve together and agree to adjust scope.
- Add tax, then seek approval from key stakeholders.
The spreadsheet should also carry a planned cost versus actual cost column so you track spending at every step. Every project has an estimated cost and a final cost; the goal is to get the two as close together as possible, recalibrating with an estimated cost to complete along the way.
Baselining and re-baselining
Section titled “Baselining and re-baselining”Budget updates can require the same approvals as the original budget, so plan for that.
Budgets can live in a simple spreadsheet or in more complex software; which is right depends on input from your organisation and your customer. Templates exist for Excel and Google Sheets, and the core spreadsheet skills worth having are SUM and AVERAGE formulas, tables and filters. A typical template’s columns: tasks, labour, materials, fixed costs, and target versus actual budget.
Maintaining the budget
Section titled “Maintaining the budget”Monitoring the budget is how you enforce accountability on spending and check that the plans you set in motion are actually happening, financially and operationally.
Milestones - the important points in the schedule that indicate progress and usually mark a completed deliverable or phase - are the natural checkpoints. They are a moment to re-review the budget and reset anything that needs it, and they are often payment points too.
| Contract type | How it is usually paid |
|---|---|
| Fixed contracts | Paid when certain milestones are reached |
| Time and materials contracts | Paid monthly on hours worked plus associated fees such as travel and meals |
Cost control
Section titled “Cost control”- Establish a sign-off plan. Decide which stakeholder or sponsor approves contractor and vendor timesheets, and who approves invoices.
- Agree every change. Do not approve a new cost or item that has not been agreed or that sits outside scope, and do not spend money without pre-approval from your stakeholder or sponsor. Bring a good business case before you bring the ask.
- Manage changes as they happen. Update forecasts and estimates and track everything, so budget changes never surprise you and you are not repeatedly asking for more money.
- Accept that misses happen. Your job is to bring expected cost overruns within acceptable limits - agree that limit (1 percent? 10 percent?) with sponsors and key stakeholders before the project starts.
Common budgeting challenges
Section titled “Common budgeting challenges”| Challenge | What it is | How to handle it |
|---|---|---|
| Budget pre-allocation | The budget is set before the project starts, often because strict budgeting cycles force estimates before scope is defined | Work with the customer to set scope and deliverable expectations inside the allocated amount; plan in detail; track expenses against the allocation routinely |
| Inaccurate TCO | Underestimating total cost of ownership - the lifetime cost of an item, not just the upfront price | Like a car: purchase price plus licence, registration and maintenance. Budget for warranties, supplies, required add-ons, upgrades and maintenance contracts |
| Scope creep | Changes and growth affecting scope after the project begins, creating unplanned work that hits the budget | Triggered by a vague SoW, undocumented agreements, unattainable deadlines, and last-minute asks from priority stakeholders - address all four while planning |
Budgeting terminology
Section titled “Budgeting terminology”| Term | Meaning |
|---|---|
| Cash flow | The inflow and outflow of cash on your project. Inflow funds resources, invoices, materials and outside services. Some projects receive all their cash up front, so watch the outflow. If inflow drops below outflow, adjust the budget. It is a reference point for project health |
| CAPEX (capital expenses) | Major, long-term, upfront expenses such as buildings, equipment and vehicles - assets the company owns and keeps, bought because they will generate future benefit |
| OPEX (operating expenses) | Short-term, often recurring expenses for day-to-day running - wages, rent, utilities |
| Contingency reserves | Funds added to the estimated project cost to cover identified risks; also called buffers. Sized by working through the risk management process. Also cover cases where actual costs exceed estimates, such as a contractor getting a raise |
| Management reserves | Funds to cover unidentified risks - the meteor that hits your construction machinery. Generally a percentage of total project cost, typically 5 to 10 percent depending on complexity. Using them normally needs sponsor approval |
| Baseline budget | The approved starting estimate you measure actual performance against |
Contingency vs management reserve in one line: contingency covers risks you named, management reserve covers risks you did not, and contingency is an estimated amount while management reserve is a percentage.
Procurement
Section titled “Procurement”Vendor management is usually about sourcing a specific service or talent rather than materials, and you typically use vendors when they bring specialised skills your company does not have in-house. Office Green has no copywriting department, so Project Plant Pals contracts a copywriter to draft website copy for a set period.
What vendor management covers: sourcing vendors, getting quotes, deciding which vendor best fits your needs, negotiating contracts, setting deadlines, evaluating performance, ensuring payments are made, and staying familiar with relevant regulations such as the Americans with Disabilities Act in the US, or its equivalent elsewhere.
Not every project needs vendors or contractors, so not every project needs vendor management.
The procurement process
Section titled “The procurement process”Tips for each step:
| Step | What to do well |
|---|---|
| Initiating | Decide what is procured internally and what is outsourced. Compare each outsourced item’s specifications, components, quality measures, standards and characteristics against project requirements - spotting features you do not need can cut total cost |
| Selecting | Research and assess vendors; check whether preferred ones have a reputation for quality work delivered on time; interview them; make site visits where possible |
| Contract writing | Attention to detail on inclusions and exclusions. Items the vendor charges for - storage, equipment, labour - may be available in-house at low or no cost. If the vendor writes the contract, check it for clarity and accuracy. Almost always consult legal and compliance |
| Controlling | The process is not over when contracts are signed. Review each vendor’s performance and quality periodically, stay professional but firm, hold regular check-in meetings, and build a good relationship so revisions are easier |
| Completing | Measure success: was the material good quality, were there labour-contract issues, how were the vendor relationships? Document lessons learned for the next project |
Agile vs traditional procurement
Section titled “Agile vs traditional procurement”| Agile procurement | Traditional procurement | |
|---|---|---|
| Style | Collaborative with the project team and the end supplier; heavy emphasis on the relationship | Standard contracts with clear terms and deliverables |
| Who drives it | The whole project team helps identify what needs procuring | The PM may run procurement end to end |
| Contract | A living contract adapted as the project is evaluated | Lengthy, extensive documentation with fixed requirements and comprehensive detail |
| Rhythm | Project and deliverables reviewed on a recurring basis, feedback addressed continuously | Clearer workstreams and deadlines set up front |
| Trade-off | Flexible, but suppliers must agree to that way of working since contracts may be renegotiated repeatedly | More rigid but better protection from unforeseen circumstances and unpredictable extra cost |
| Negotiation | Ongoing | Trickier - little room to renegotiate, so a change may mean starting over. Spend more time in negotiation and be as detailed as possible |
Remember it through the word agility: moving easily and quickly. Agile procurement changes more easily than traditional procurement.
Procurement documents
Section titled “Procurement documents”Three documents map onto three phases of the process.
| Document | Phase | What it is |
|---|---|---|
| NDA - non-disclosure agreement | Initiating | Keeps confidential information inside the organisation. Standard practice to ask external contract workers to sign one, so proprietary technology or a sensitive launch does not leak to competitors or the public |
| RFP - request for proposal | Selecting | Outlines the details and requirements of the project and goes out to vendors to solicit bids, so you can compare and select |
| SoW - statement of work | Contracting | Sent after the vendor is selected; lays out the products and services the vendor will provide, and evolves as the project goes on |
Inside an RFP
Section titled “Inside an RFP”An RFP typically carries an overview of the project, desired outcomes and goals, budget, deadlines, milestones and contact information, so each vendor can return a detailed proposal. Use these headers:
- Overview - a general summary: the purpose of the project, the problems it solves, the doors it opens for the company.
- Goals - measurable results you aim to achieve.
- Scope of work - the specifics: how you will hit the goals and launch successfully.
- Milestones - the key ones the project will include.
- Submission requirements - format and content, for example submit as a presentation with three prototypes, plus the questions you want vendors to answer (what issues do they foresee, how do costs break down). This is how you properly assess them.
For Project Plant Pals you would send an RFP to all possible plant providers to make sure you get the best price, quality and overall value. You will hear it used as a verb, as in asking whether something has been RFP’d yet.
Anatomy of a statement of work
Section titled “Anatomy of a statement of work”It must capture the customer’s, the organisation’s and the vendor’s needs, because every party has to understand what is expected of them. The PM writes it, drawing on subject matter experts (SMEs) for technical depth they lack, and the legal advisors review or even co-draft it.
| Section | What goes in it |
|---|---|
| Page headers | Company name, project, creation date |
| Stakeholders | You as PM, and the sponsor - the Director of Product for Plant Pals |
| Revisions table | Several stakeholders will review and suggest changes; log each round here |
| Purpose | The desired outcomes in detail, plus a target audience section that is inclusive of everyone. Example: launch a service providing desk plants to offices and commercial businesses |
| Scope | What the service entails - small low-maintenance desk plants, ordered online or from a print catalogue, shipped to the work address; plants in scope are six-inch leafy ferns, small cacti and five-inch bonsai trees. Major activities: warehouse storage, keeping plants healthy with water and light, sourcing vases in near-perfect condition on delivery |
| Out of scope | What the project does not include - annual reporting, custom plant orders not named in scope. Draws clear lines and sets vendor expectations |
| Deliverables | A concise statement of what will be delivered - maintenance guides for plant care, a support page on the Office Green website |
| Milestones | Fulfil the first quarter of plant orders, deliver to all top customers, launch customer satisfaction surveys, collect and report on feedback insights |
| Hours and dates | How many hours completion requires, and the date the services must be performed by |
| Terms, conditions and disclaimers | Including a disclaimer that revisions may occur as the project goes on, in case scope changes through unforeseen issues - better than over-promising and under-delivering |
| Payment terms | When suppliers get paid. Paying on time builds strong relationships |
Legal, compliance and ethics
Section titled “Legal, compliance and ethics”Procurement does not end when contracts are signed. You use performance trackers and meetings such as quarterly business reviews to evaluate whether both parties are living up to the agreement.
When contract terminology is unfamiliar, bring in legal. What that looks like varies: larger, well-established companies have an in-house legal team, some businesses outsource it, and startups or small companies may have no team at all and reach out to legal advisors as needed. Laws on manufacturing and consumerism differ country to country, but there are nearly always rules on fair and ethical trade.
Most companies have a mission or value statement, and ethics and compliance teams check that day-to-day operations follow it and follow government policy - including preventing discrimination and maintaining adequate corporate social responsibility. As PM you make sure the stakeholders representing the business follow those policies too, and you remind the team when legal or compliance meetings are happening. Looping in the right stakeholders matters most when an approval is required.
Safeguarding ethical procurement
Section titled “Safeguarding ethical procurement”- Know your business’s legal requirements - understand deeply what is required of you legally as a PM for your organisation, and research the rules of every country you do business in.
- Follow a professional code of ethics - the Project Management Institute (PMI) publishes one, accessible to members and credential holders. Its four driving values are honesty, responsibility, respect and fairness.
- Use judgement, then ask - if you are unsure, apply what you believe those values mean and keep researching. Still unsure? Ask an SME such as someone from legal.
Common ethical traps
Section titled “Common ethical traps”| Trap | What it looks like |
|---|---|
| Corruption and bribery | A vendor reducing competition during bidding; bribes of money, gifts or event tickets to sway a decision; a kickback, a percentage of an awarded contract paid to an official who ensures their company wins. Also covers labour: workers in production must be treated fairly, work in good conditions and be paid adequately, and regulations abroad may differ from your own |
| Sole-supplier sourcing | Non-competitive procurement restricts bidding to one supplier. Sometimes legitimate, for example a company cautious about exposing trade secrets, but you must be able to justify the restriction. It turns unethical when equally qualified vendors are never allowed to bid, or when a vendor approaches the buyer before a bid is even requested - competition, and its benefits of reasonable pricing, quality standards and fast delivery, is lost |
| State-owned entities | Government agencies and officials often impose tighter restrictions and stricter standards - bodies like the FDA or OSHA keep businesses inside legal and ethical limits. Not knowing the restrictions for your industry is how you fall in unintentionally |
Testing an ethical decision
Section titled “Testing an ethical decision”When facing a dilemma, ask yourself five questions:
Ethics across the phases
Section titled “Ethics across the phases”| Phase | What you check |
|---|---|
| Initiating | Is the project ethical at all? Does it meet the business code of ethics and government environmental ethics? Will labour be ethically sourced? Review regulations and policies, assess risks, and assemble a diverse team you trust to be ethical |
| Before contracts are signed | Are the suppliers themselves ethical? Are you procuring them ethically and paying a fair rate? Do you fully understand the supply chain? |
| After signing | Carry out assurance duties - audit each task and cost, run quality control, approve invoices |
| During production | Focus on day-to-day vendor relationships so they know and meet the deliverables and keep you informed of roadblocks |
Revision summary
Section titled “Revision summary”Next: Managing Risks → - finding what could go wrong before it does.