Are you working from an Estimate, or a Budget?

These two get confused quite a bit. They seem to be the same, and one usually derives from the other, but they’re not the same.

An estimate is an approximation of what your project (or piece of it) will cost. The budget is what you’re allowed to spend. The estimate provides a guideline, the budget provides hard edges. You can’t go ‘over-estimate’, but you can go over-budget.

Estimate vs Budget applies to more than just money or cost. It also applies to resources.

Why is this difference important? Well we need to be clear on what we’re talking about so that we know the parameters. If we’re talking about estimated time, or estimated cost, this implies a range. Like with any ‘educated guess’ there’s an allowance for factor of variation. Budgets don’t allow that deviation.

Let’s use the US Presidential election process as an example. The polls repeatedly show one candidate leading another – 49%, 53%, 47%, on so on. And each poll is ‘qualified’ that there’s a +/- 3% margin of error, meaning that these numbers are an ‘estimate’, but that there’s a range. On the other side, on Election Day there are only 538 votes in the Electoral College. That’s a budget. It’s a hard number.

Now, which is more important? Well that depends on your organization. It may be that your organization doesn’t have cash or time constraints, so the estimate is created for the project, and the budget is allocated based on that with some flexibility.

Or it could be the reverse – the company has a limited budget, and based on the estimate, will decide whether to proceed to not.

So it’s important to be aware of which you’re talking about. This understanding will also help in status reporting.

Management usually speaks in ‘budget’ terms, the team in ‘estimate’ terms.

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