Budgeting for Projects
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Transcript of Budgeting for Projects
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MEM 612 Project Management
Introduction
Budgetsare plans for allocatingorganizational resources to project
activities.
forecasting required resources, quantitiesneeded, when needed, and costs
Budgetshelp tie project to overall
organizational objectives. Budgetscan be used as tool by upper
management to monitor and guide
projects.
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MEM 612 Project Management
METHODS OF BUDGETING
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MEM 612 Project Management
Top-Down Budgeting
Based on collective judgements andexperiences of top and middle managers.
Overall project cost estimated by
estimating costs of major tasks
Advantages
accuracy of estimating overall budget
errors in funding small tasks need not be
individually identified
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MEM 612 Project Management
Bottom-Up Budgeting
WBS or action plan identifies elementaltasks
Those responsible for executing these
tasks estimate resource requirements
Advantage
more accurate in the detailed tasks
Disadvantage
risk of overlooking tasks
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MEM 612 Project Management
COST ESTIMATING
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MEM 612 Project Management
Work Element Costing
Determine resource requirements andthen costs for each task
costs (e.g., materials)
labor time
labor rate
equipment time
equipment rate overhead
GS&A
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MEM 612 Project Management
The Impact of Budget Cuts
Two project life cycles
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MEM 612 Project Management
IMPROVING COST ESTIMATES
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MEM 612 Project Management
Learning Curves
r
n nTT
1
where
Tn= the time required to complete the nthunit
T1= the time required to complete the first unit
r= log(learning rate)/log(2)
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MEM 612 Project Management
Tracking Signals
Used to determine if there is a systematicbias in cost or other estimates
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MEM 612 Project Management
Other Factors
Changes in resource prices
Increase all estimates by same percentage
Estimate rate of price change individually
for inputs that have significant impact oncosts
Waste and spoilage
Team member turnover Mythical man-month
Organization climate
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MEM 612 Project Management
BUDGET UNCERTAINTY AND
RISK MANAGEMENT
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MEM 612 Project Management
Estimate of Project Cost: EstimateMade at Project Start
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MEM 612 Project Management
Three Basic Causes for Change inProjects Errors made by cost estimator about how
to achieve tasks.
New knowledge about the nature of the
performance goal or setting.
A mandate.
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MEM 612 Project Management
Risk Management
Risk Management Planning
Risk Identification
Qualitative Risk Analysis
Risk Response Planning
Risk Monitoring and Control
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MEM 612 Project Management
Failure Mode and Effect Analysis(FMEA) List ways project might fail
Evaluate severity (S) of each failure
Estimate likelihood (L) of each failure
occurring
Estimate ability to detect each failure (D)
Calculate Risk Priority Number (RPN)
Sort potential failures by their RPNs
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MEM 612 Project Management
Other Approaches
Game theory
Expected value
Simulation
