Skills and knowledge activity

Answer each question in as much detail as possible, considering your

organisational requirements for each one.

 Give examples of the budgeting processes, tools and techniques

The tools are techniques for the Determine Budget process aren’t rocket
science. In fact, the whole process is really about adding up your
estimates, making sure nothing is overlooked and then presenting the
total as a summary figure.
Having said that, it does help to work through the process because it is
remarkably easy to overlook something and getting the budget wrong is
embarrassing (trust me, I’ve been there).
The tools and techniques you can draw on to prepare your project budget
are:
 Cost aggregation
 Reserve analysis
 Expert judgement
 Historical relationships
 Funding limit reconciliation.

 Outline how you have applied these to project in the past.

Project managers use budgeting tools and techniques to create financial

data that ensure a project is funded adequately and can be completed
within the allotted budget. Using models, templates and calculators, an
effective project manager estimates accurately, monitors carefully and
manages risk appropriately. These tools help the project manager
effectively communicate the project budget status to the project sponsor,
who typically provides the funding, throughout the project life cycle.
 Outline methods and tools for costing and cost analysis

 parametric estimating – Parametric estimating is a powerful technique

for forecasting costs using parameters related to the scope of the project
and product, as well as resource cost information. Parameters, which are
attributes of an activity, can include its scope, cost, budget, and duration.
The accuracy of the parameters you include will determine how accurate
an estimate is.

 bottom-up estimating – Bottom-up cost estimating involves making

separate estimates of the cost for each work package in the work
breakdown structure, or WBS. To determine the estimate for a work
package, you break the work package down into its detailed activities,
estimate costs for each activity, then roll those costs up to the work
package level.

 Explain how you would develop a budget for a project.

The project budget is a detailed estimate of all the costs required to

complete project tasks. It is much more detailed than the high-level
budget developed in the Initiate Stage. The typical budget specifies costs
for staff labor, materials procurement, ongoing operating costs and other
direct costs such as travel or training.
Rationale/Reason
The detailed budget provides the project sponsor with a best estimate of
how much the project will cost. The detail budget helps manage
expectations and gives the project sponsor information to develop a
cost/benefit for the project.
The budget is also used in the Execute and Control stage to help
determine whether the project is financially on track.
Who is involved?
Project Manager
Project Sponsor
Project Team
Results
This information is included in a separate section of your project plan
often referred to as “Project Budget.”
 Suggest ways to evaluate the cost management of a project.

One effective way to break down the budget is by evaluation activities.

Some activities will have repeatable costs. For example, hosting a focus
group may have similar expenses each time such as, transportation
allowances and refreshments for respondents, note-taking and
transcription services, and meeting space rental. In the case of data
collection activities, determine the cost of each activity and multiply those
costs to achieve the desired sample size. Another approach is to tackle
large budget items such as personnel and travel.
Major activity

Using an example project relates to your organisation, answer the following:

1. Create a WBS. Use the individual tasks identified within the WBS to
determine the resource requirement

A question of resource
By defining the independent and interlocking nature of each task required
by the project, the WBS helps to clearly pinpoint all resources needed at
each stage. These resources include ensuring the right people with the
relevant qualifications and experience are employed to oversee and work
on each task. When examining this, the project manager needs to take a
human resources management approach to project management.
Having the wrong people in place will have an adverse effect on quality,
cost, and time.

2. Estimate the project costs

In a world of limited funds, as a project manage you’re constantly deciding

how to get the most return for your investment. The more accurate your
estimate of project cost is, the better able you will be to manage your
project’s budget. Therefore, estimating a project’s costs is important for
several reasons:
 It enables you to weigh anticipated benefits against anticipated costs to
see whether the project makes sense.
 It allows you to see whether the necessary funds are available to support
the project.
 It serves as a guideline to help ensure that you have sufficient funds to
complete the project.

3. Develop a budget for your project

Use Your Task List

First, take your project task list. You might also have a work breakdown
structure and if you have one, it’s best to use that. But a task list will do as
long as it comprehensively covers everything that you need to do on the
project.

If you don’t have a task list, it’s time to create one. Write down everything
that you have to do and the things you have to build or make or complete
before the project can be finished. It doesn’t have to be in any particular
order, but it does need to include everything.
 Finally on this step, brainstorm ideas with your project team, as there is
bound to be something you have forgotten. Many heads are better than
one!

4. Develop a cost management plan

Resource planning is best facilitated by having a database of historical

resource data. This data should include past experiences with resource
usage, availability, limitations, and similar information. The collection of
historical resource planning data is generally a part of the project
performance assessment process because resource plans and actual usage
are in large part inherent to cost and schedule control records.
Development and maintenance of resource planning tools (e.g., checklists,
standard procedures and chart of accounts) is also a step in this process. A
standard chart of accounts, along with the WBS, facilitates resource
planning by establishing ways to consistently categorize resource
information.

5. Monitor your actual expenditure against your budget using financial

management processes and procedures

It is essential that you can monitor income and expenditure according to

the budget and identify ways of improving budget performance. Part of
your job is to also control expenditure, so that outgoings are all disbursed
according to the rules and the budget. If you have a very detailed
predictive budget, here's what to do:
1. At regular intervals, check actual income and expenditure against the
budget to know if the actuals follow the budget and cash flow projections.
2. Keep key people advised of the budget status. If something is wrong,
inform the right person. But check your message for accuracy first,
because you don't want to create unnecessary angst. A quick, informal
oral message will sometimes be enough, but it might be wise to have
something in writing. Email is good.
3. Prepare and present income and expenditure reports. Your organization
probably has its own format and you should know who you are supposed
to submit them to.
6. Identify cost variations using cost-analysis methods and tools. Evaluate
any alternative actions

Identifying the function in the broadest possible terms provides the

greatest potential for divergent thinking because it gives the greatest
freedom for creatively developing alternatives. A function should be
identified as to what is to be accomplished by a solution and not how it is
to be accomplished. How the function is identified determines the scope,
or range of solutions that can be considered.

That functions designated as “basic” represent the operative function of

the item or product and must be maintained and protected. Determining
the basic function of single components can be relatively simple. By
definition then, functions designated as “basic” will not change, but the
way those functions are implemented is open to innovative speculation.

7. How would you implement and monitor these actions

As important as the basic function is to the success of any product, the

cost to perform that function is inversely proportional to its importance.
This is not an absolute rule, but rather an observation of the consumer
products market. Few people purchase consumer products based on
performance or the lowest cost of basic functions alone. When purchasing
a product it is assumed that the basic function is operative. The
customer’s attention is then directed to those visible secondary support
functions, or product features, which determine the worth of the product.
From a product design point of view, products that are perceived to have
high value first address the basic function’s performance and stress the
achievement of all of the performance attributes. Once the basic functions
are satisfied, the designer’s then address the secondary functions
necessary to attract customers. Secondary functions are incorporated in
the product as features to support and enhance the basic function and
help sell the product. The elimination of secondary functions that are not
very important to the customer will reduce product cost and increase
value without detracting from the worth of the product.

8. Develop a financial report

Financial reports are developed for internal use such as monitoring

expenses within the organization and also for external use such as for
submitting reports to donor agencies. In many cases, there can be
separate formats for both the uses. Nevertheless, it is important that the
internal financial reports are properly developed according a guideline
9. What activities should you conduct in order to signify financial
completion?

Quality management is a process of continual improvement that includes

learning from past projects and making changes to improve the next
project. This process is documented as evidence that quality management
practices are in use. Some organizations have formal processes for
changing work processes and integrating the lessons learned from the
project so other projects can benefit. Some organizations are less formal
in the approach and expect individuals to learn from the experience and
take the experience to their next project and share what they learned with
others in an informal way. Whatever type of approach is used, the
following elements should be evaluated and the results summarized in
reports for external and internal use.

10. Review your project. How effective was your project cost management?

The project leadership reviews the effect of trust—or lack of trust—on the
project and the effectiveness of alignment meetings at building trust. The
team determines which problems might have been foreseen and mitigated
and which ones could not have been reasonably predicted. What were the
cues that were missed by the team that indicated a problem was
emerging? What could the team have done to better predict and prevent
trust issues?

11. Review any cost-management issues. What improvements could be made?

The original schedule of activities and the network diagram are compared
to the actual schedule of events. Events that caused changes to the
schedule are reviewed to see how the use of contingency reserves and
float mitigated the disruption caused by those events. The original
estimates of contingency time are reviewed to determine if they were
adequate and if the estimates of duration and float were accurate. These
activities are necessary for the project team to develop expertise in
estimating schedule elements in future projects—they are not used to
place blame.

A review of budget estimates for the cost of work scheduled is compared

to the actual costs. If the estimates are frequently different from the actual
costs, the choice of estimating method is reviewed.