Budget Planning : Develop Your Project Management Skills
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These are notes drafted from this video for my reference and learning.
All Credits to : The video creator and presenter
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Project Management Foundations: Budgets
Your budget along with scope and schedule
Focus on the Triple Constraints
- Schedule
- Scope
- Cost
What is a project budget?
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- Bankruptcy leaves a really bad impression.
If you don't establish, manage,
and control costs on your project,
you can end up with a bankrupt project
where costs exceed benefits.
To avoid this fate, you should control costs
while delivering needed outcomes.
The project budget is the tool
to ensure that you're spending
doesn't exceed your funding limits.
Here are my suggestions for creating a project budget.
First, focus on the triple constraints,
the schedule, the scope, and the costs.
If you ignore any of these, you could spend
too much time focusing on the projects product,
and spend more money than is feasible.
An analysis of what you can and can't possibly accomplish
and what the costs are, is important
when creating an accurate budget.
A comprehensive project budget isn't overly complicated,
but it does have to take into account business realities.
Second, think about your project from start to finish.
Ask the following questions.
How much money has been allocated?
What expenses are mandatory?
Which expenses aren't vital for success?
Can I create realistic estimates,
and if not what research do I need to do to produce them?
Has this type of project been done before,
and can you obtain historical cost information?
Third, look at your major expenditures.
The typical budget specifies costs,
for labor, materials, costs of financing,
and other costs such as travel and communications.
I suggest spending time determining
the costs of each of these categories.
Ask people to share their experiences.
Doing these things will help you piece together
a more accurate budget.
Four, discuss contingency dollars with your sponsor.
Contingency is money set aside
to address risks such as, technical difficulties.
Because projects create business change,
which can be unpredictable, it's important to have
contingency funds set aside to handle the unexpected.
Lastly, consider the information you'll need
to support the cost and benefit data for the project.
This should come from your project sponsor
and major stakeholders, and should be
in a business case for the project.
This information should reflect a balance
between the money you spend
and the benefits you provide for the business.
Keeping this in mind can help you
manage expectations with your sponsor and key stakeholders.
A project budget should not be a random prediction,
it needs to be a realistic evaluation
of the costs for everything you identified
in your work breakdown structure.
For more information on the work breakdown structure,
check out other project management courses
here in this library.
Building your budget can be a tedious process.
However, the effort you spend building
an accurate budget will pay you back tenfold
as you track and manage the costs of your project.
Ask these questions .
1. How much money has been allocated
2. Which expenses are mandatory
3. Which expenses are not vital for success
4. Can I create realistic estimates
And if not what research I need to do to produce them ?
5. Has this type of project done before and can we get historical cost information.
Budgets with WBS and project tools
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- Have you ever been asked to meet for dinner in the city?
While you may have a general idea where you're going,
you'll need more specifics to arrive at your destination.
Building a budget without specific project deliverables
is a bit like that.
You may have an idea of what you have to do,
but you need more specifics to achieve your final outcome.
Let's look at the steps you need to follow
so your project budget fits the bill, so to speak.
First and most important step is to create
an initial budget from
your work breakdown structure, or WBS.
A WBS is the logical grouping of things
that need to produced by your project.
Items in a WBS are broken down into tasks
or work packages that can be assigned
to a knowledgeable person to handle.
You then assign costs to each task.
Assign control account numbers
to tie with your accounting system
and roll them up to create
an initial budget for your project.
Next, you compare your initial budget
to your sponsor's cost expectation.
You can then help set or adjust those expectations
and refine your initial budget
by comparing your results to cost data
taken from other projects.
You're not done however, as the WBS
isn't the only project management deliverable
that should be used to refine your project budget.
I recommend evaluating your schedule,
risk management plan, procurement,
and quality plan deliverables.
Your schedule should include the activities from your WBS,
however the schedule will also show
when you will be spending funds.
Your sponsor and finance manager
will want to understand spending by quarter,
or by month, for forecasting purposes.
Your risk management plan should detail
not only risk that can surface which affect the project,
but the costs associated with mitigating those risks.
Mitigation costs need to be include in your budget.
However, when risks pass by and do not come to fruition,
you may adjust your budget downward
for mitigation costs you no longer have to consider.
Procurement plans not only detail
the costs of buying products you may need for your project,
but may also include primary and alternate vendors.
Using an alternate vendor can change your purchase
and shipping costs, and need to be considered
in your overall budget.
Lastly, your quality plan outlines the evaluation
or test processes you will use to ensure
the product of your project is appropriate.
It should also outline what to do
if your product fails a test.
Ensure you understand these activities
and how they may impact your project budget.
For a more comprehensive list
of how other project tools can affect your budget,
check out the document I included
in the Exercise Files for this course.
It's critical to put together
a sound budget for your project
and by using a small, standard set
of project management tools, you can make this much easier.
Discover costing standards
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- Managing a purchase in the United States
is a very different experience than obtaining goods
in Mexico or China.
The cost you see or are told about a product
is typically fixed in the U.S. but is only a starting point
for a rich conversation in other countries.
These are two very different or distinct costing
or pricing standards.
Business typically have their own costing standards
for acquiring the resources you'll need
to deliver your project.
So it's important you understand them.
Let's discuss some typical costing standards.
The first is your organization's internal costing
or accounting practices.
Every organization has some and they'll guide
your budgeting process.
Talk to your accounting department and ask what costs
they track and how they track them.
The second standard is how your company budgets
for pre-planned and last minute costs for a resource.
For example, say you need to hire a large piece of equipment
like a truck to transport materials.
You'll probably find that to rent a truck costs
X amount per day.
However, you may also learn your organization
has a leasing agreement that allows you to hire a truck
at a lower rate if booked two weeks in advance.
So, which amount should you put in your budget?
Instead of automatically using the preferred price,
determine the chances that you may need
to arrange that truck at the last minute.
That your schedule may change,
it may be wise to consider a blending
of the two rental costs in your budget.
The third most common costing standard is how or if
the cost of people is tracked and charged to the project.
For people within your company,
this may include standard rates of pay
by pay grade and job level.
For contractors, it's important you understand the details
of how contractors are paid.
You'll need to understand,
do contractors get an hourly or daily rate.
Will you be charged a greater amount for some unique
or in-demand expertise?
Does your organization have standard contracts
with personnel firms?
Finally, the last common standard to verify
is your accounting department's preferred costing standard
for things like office space, telephone charges,
or other items.
Using this information allows you to propose
and manage budget alternatives.
It allows you to consider project trade offs
such as skill versus quality versus time.
For example, if you delegate a task to a junior engineer,
they'll do the work at a cheaper rate
than a more experienced engineer.
But they may take twice as long to complete the task.
You then have a trade off in terms of cost per hour
versus number of hours.
Remember that no two projects will cost the same.
So understand the costing standards in your organization
and the experience of other project managers who've worked
on similar projects to help you achieve budgeting success.
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