# How to budget a project: the basics

> List what the project needs, estimate each item, set a ceiling, keep a reserve and track what you have ordered and paid. A worked example with real arithmetic.

Source: https://priortasks.com/guides/project-budget-basics/
Last updated: 2026-11-05

A project budget answers three questions: how much will this cost, how much is already spent or promised, and are we over? To answer them you need a list of everything the project has to buy, an estimate for each item, a ceiling you do not want to cross, and a record of where each purchase stands.

## The method in a few lines

1. List every item the project needs, and group the items by category.
2. Estimate each one as quantity times unit price.
3. Set an envelope: the most you can spend.
4. Add a reserve line for what you cannot foresee.
5. Track where each item stands: to buy, ordered, received, paid.
6. Replace each estimate with the real cost as soon as you know it.
7. Compare the expected total with the envelope at fixed times, and decide what to do when it does not fit.

## Why it works

A budget usually goes wrong in two ways: items are missing, and the figures for the items on the list are optimistic. The planning fallacy is the name for this optimism. [Kahneman and Tversky coined it in 1979](https://spsp.org/news-center/blog/buehler-planning-fallacy), and Buehler, Griffin and Ross showed in 1994 that people underestimate their own completion times. The usual remedy is the outside view: look at the track record rather than the specifics of this project. How much did similar projects cost, and how often did the quote change?

Three habits turn that into a budget.

- **A complete list.** Each missing item is a surprise later. Shipping, fees, small parts and delivery are the usual ones.
- **Two numbers per line.** An estimate before you know, and the actual cost once you do. A budget that mixes them without saying so cannot tell you how reliable it is.
- **A reserve.** Project managers call it a contingency: money set aside for the costs you cannot name yet. The less you know about the work, the more room it needs. The reserve is a line you can see, so spending it is a decision rather than a drift.

## What to track

There are four amounts, and they answer different questions.

| Amount | Question it answers |
| --- | --- |
| Paid | What has left my account? |
| Ordered | What have I committed to that I have not paid yet? |
| To buy | What am I still going to spend? |
| Expected cost | The three above together, using the real cost where known |

The envelope minus the expected cost is what is left. Looking only at what you have paid hides the part that matters: an order already placed is money you have committed.

## A worked example

You are organizing a one-day workshop for 20 people, and you can spend €1,200. Your first list looks like this, with a €100 reserve line.

| Item | Quantity × unit price | Status | Counted |
| --- | --- | --- | --- |
| Room hire | 1 × €450 | Ordered | €520 (the quote) |
| Lunch and coffee | 20 × €14 | Ordered | €280 |
| Printed handouts | 20 × €3.50 | To buy | €70 |
| Train tickets | 2 × €65 | Paid | €138 (the real price) |
| Name badges | 20 × €1.20 | To buy | €24 |
| Contingency | 1 × €100 | To buy | €100 |

Before the quote, the expected total was €1,054, which left €146. After the room quote came in at €520 and the tickets cost €138, the picture changed:

- Paid: €138
- Ordered: €520 + €280 = €800
- To buy: €70 + €24 + €100 = €194
- Expected cost: €1,132
- Left of €1,200: €68

Nothing was spent beyond the plan, yet the margin shrank from €146 to €68 because two estimates were wrong. That is the point of tracking: the problem shows up now, with €194 still to buy, not on the day.

## How to run it, step by step

1. **Write down the scope.** What must the project deliver, and what is out? You cannot list what you have not defined.
2. **List the items.** Go through the project's steps and ask, for each one, what has to be bought. Add categories as you go.
3. **Get real prices for the large items first.** One quote beats five guesses. For the small ones, a rounded estimate is fine.
4. **Set the envelope.** If you do not have a ceiling, the budget can only report, never warn.
5. **Add the reserve.** Put it in as a line, so it is part of the total.
6. **Update the status when it changes.** When you order, mark it. When you pay, enter the actual cost.
7. **Review at fixed times.** Weekly for a short project. If the expected cost passes the envelope, choose: cut an item, find a cheaper source, ask for more, or accept a smaller scope.

## Mistakes to avoid

- **Leaving out the small items.** Fifty small costs add up to one large one.
- **Counting only what is paid.** Orders are commitments. Track them.
- **No envelope.** Without a ceiling there is no signal that you are over.
- **Spending the reserve without noticing.** Move the reserve into real lines when you use it, so it shrinks visibly.
- **Mixing taxes.** Decide once whether prices include VAT or sales tax, and keep to it for every line.
- **Never updating estimates.** A budget that still shows the first guesses after the quotes arrive is a wish.
- **Several currencies in one list.** A Prior budget holds one currency. Convert before you type.
- **Estimating to the cent.** A rounded figure that you replace with the real cost is more honest than a precise guess.

## In Prior

Every project has a **Budget** tab. It was built for exactly this list: what the project has to buy, what each item should cost, what it really cost, and where each purchase stands.

- **Add** a line with a name, a quantity and a unit price, then press <kbd>Enter</kbd>. Click a line to add the **Actual cost**, a **Category**, a **Supplier**, a **Link** to the quote and a **Task** of the project.
- **Click the status** on a line to move it from **To buy** to **Ordered**, **Received**, **Paid**, and back to **To buy**.
- The summary shows the **Expected cost**, the envelope ("of €1,200 · €68 left", or the amount over, in red), and one bar split into paid, ordered and still to buy.
- **Set a budget** sets the envelope. In the settings you also choose the currency: EUR, USD, GBP, CHF, CAD or AUD.
- **Paste a list** reads rows from a spreadsheet or a shopping list and shows a preview before adding anything. **Export CSV** gives you a file Excel opens directly.
- Prior counts the actual cost as soon as you enter one, whatever the line's status. It does not split taxes: amounts are whatever you type.
- A shared project's viewers see the budget read-only. A budget holds at most 500 lines.

> [!pro]
> With Pro, **Read with Prior AI** reads quotes, invoices and receipts that you paste in. Everything else in the Budget tab needs no paid plan.

Your assistant can help too: the Prior AI assistant can add and edit budget lines as a review card you confirm, and Claude or ChatGPT can read and update a budget through [MCP](https://priortasks.com/guides/manage-tasks-from-claude-and-chatgpt/). The Budget tab is explained in [Project budget](https://priortasks.com/docs/projects/project-budget/), and [Create a project](https://priortasks.com/docs/projects/create-a-project/) shows how to start a project. Each line can link to a task of the project: see [Create a task](https://priortasks.com/docs/tasks/create-a-task/).