How do you create a budget for legal/tax/compliance project – in other words how do you estimate how much the project will cost ?
First of all you need to know what you are trying to estimate. Therefore in first step you will either collect the list of tasks to be performed (in standard phased projects or checklist approach) or define requirements for agile projects (product backlog, user stories etc).
Next step is to assign estimated cost to task list or requirements. For work done by the project team it will be based on estimation of time requirement of task and team velocity in finalizing that task. For some items (for example travel cost) historic data on similar projects can be helpful. For some we can use lessons learnt material (for example risk cost from other projects). For some we will need expert cost assessment (specific services like civil engineering expert opinion).
Most project will require cost elements which are not related to specific task – for example office space cost, computer equipment cost etc. Ask your finance business partner to help you estimate those.
In most cases project or execution team will be supported by other teams (HR, IT, Finance) – in longer, larger scale projects it is advisable to learn and understand what is exactly support functions cost. This might apply also if project is fully outsourced (for example cost of internal procurement department to choose a supplier).
As money has value, in some cases (again large, long lasting projects) cost of financing the project is advisable to add to project budget. In case of costs carried in foreign currencies the cost of FX maintenance should be covered.
Risk cost should be also included in the budget, and should be the result of risk analysis (for example risk mitigation by insurance).
One of final tasks, not to be underestimated, is adding relevant taxes and tax effects. Relevant taxes examples might be VAT, withholding tax (especially when services bought from other countries). Tax effects might be project consequences in tax calculation (special tax deductions, capitalization of ptoject cost etc).
Last, for projects with higher level of uncertainty it is advised to include some buffer (contingency) especially at the beginning of the project when the uncertainty levels tend to be high. This is usually done by adding % of total cost to the estimation.
Please remember of the difference between cost and cash expenditure as two can differ in timing and value.
Hope you liked the read ! “use strict”