tailieunhanh - Lecture Project management in practice (6th Edition) – Chapter 4: Budgeting the project

The following will be discussed in this chapter: Methods of budgeting, cost estimating, improving cost estimates, budget uncertainty and project risk management, project risk simulation with crystal ball. | Chapter 4 Budgeting the Project Introduction A budget must be developed in order to obtain the needed resources A budget is a plan for allocating organizational resources to the project activities A budget ties the project to the organization’s aims and objectives through organizational policy A budget acts as a tool for upper management to monitor and guide the project Methods of Budgeting Budgeting is forecasting what resources the project will require, what quantities of each will be needed, when they will be needed, and how much they will cost Most businesses employ experienced estimators who can forecast resource usage very well Budgeting a project is more difficult than budgeting more routine activities Budgeting Problems Project are unique activities No history to aid estimators Projects may be multi-year with cost escalations Changes in technology, materials, prices Organization tradition impacts project budgeting How overhead and indirect costs are charged Specific legal . | Chapter 4 Budgeting the Project Introduction A budget must be developed in order to obtain the needed resources A budget is a plan for allocating organizational resources to the project activities A budget ties the project to the organization’s aims and objectives through organizational policy A budget acts as a tool for upper management to monitor and guide the project Methods of Budgeting Budgeting is forecasting what resources the project will require, what quantities of each will be needed, when they will be needed, and how much they will cost Most businesses employ experienced estimators who can forecast resource usage very well Budgeting a project is more difficult than budgeting more routine activities Budgeting Problems Project are unique activities No history to aid estimators Projects may be multi-year with cost escalations Changes in technology, materials, prices Organization tradition impacts project budgeting How overhead and indirect costs are charged Specific legal issues Accounting idiosyncrasies Project managers see costs differently than accountants Accounts treat costs linearly Top-Down Budgeting Based on collective judgments and experiences of top and middle managers Overall project cost estimated by estimating the costs of major tasks Advantages Accuracy of estimating overall budget Errors in funding small tasks need not be individually identified Disadvantage Allows budget to be controlled by people who play little role in designing and doing the work required by the project Bottom-Up Budgeting Work breakdown structure (WBS) identifies elemental tasks Those responsible for executing these tasks estimate resource requirements Advantage More accurate in the detailed tasks Disadvantage Risk of overlooking tasks Cost Estimating Details of the process of estimating costs Some dangers of arbitrary cuts in the budget Difference between activity budgeting and program budgeting Work Element Costing Determine resource requirements and then costs for .