Starting a transcription project

[Marian55]

I have recently inherited a large number of diaries kept by my grandmother.  I would like to begin transcribing them, but as many people and places will be mentioned I would also like to be able to create an index as I go along.
Does anyone have any advice as to how to go about such a project?  Would I need specialist software, or is this something I can do in Word?  Is there anything else I should consider before starting such a project?
Many thanks for any suggestions offered.

[GrahamSimons]

Word does a grand job and will construct the index as you go along. My own family history writing is in Word and has something like 25 pages of index in 3 columns!
It'll also do contents pages (so in your context, years or months) and keep those updated - and lists of illustrations as well.
Excellent tool.

[Marian55]

Thank you!  That's useful to know, and reassuring too that I will be able to get started without having to purchase specific software.