We were sitting at the table in the conference room, discussing how we’ll implement the new cost tracking features in AceProject. And I realized the difference between budget and estimate was not clear at all to everyone sitting at that table.

What’s the difference, anyway?

Budget is defined as:

• A sum of money allocated for a particular purpose

An estimate is defined as:

• An approximate calculation of quantity or degree or worth; “an estimate of what it would cost.”

A budget is often something that is decided before estimating how much something will cost. The organization decides how much they can invest in the project, then they decide on the scope of the project, and finally the project team estimates how much it will really cost to do the project. When the estimate is higher than the budget, the fun begins.

Here’s an example:

• I want to buy a new car. I know I can afford to pay 15 000$ for the car. That’s my budget.
• I go to the car dealer and I pick the car I want, with all the options I […]