Business Department 1

Project Management C53PM

Session 7

Project Budgeting

Russell TaylorBusiness Department

Staff WorkroomE-mail: rtayl@borderscollege.ac.uk

Business Department 2

Session 7

• Projects Budgeting– Chapter 7

"It's clearly a budget………  it's got a lot of numbers in it."

Business Department 3

Project Objectives

Time

CostQuality

• Meet quality and scope requirements• Deliver project on time • Deliver project within budget

Business Department 4

Cost Planning

• Scottish Parliament – Initial Budget £40m Final £415m

• Sydney Opera House– Initial Budget $A6m Final £A100m

• London’s Jubilee Line extension– Initial Budget £2.1bn Final £3.5bn

• Millennium Dome– Construction costs £50m Final grant £628m

• Channel Tunnel– Initial Budget £4.8bn Final £10bn

Business Department 5

Budget & Cash flow

• Budget – A sum of money allocated for a particular purpose– Sum of money for all planned expenses

• Profit – The net excess of revenue after expenses in a

given period

• Cash flow– An analysis over a period of time revealing the

availability, or lack, of cash. – The difference between cash in (income) vs. cash

out (expenses).

Business Department 6

Cost Planning

• Income – Expenditure = 0 √• Income – Expenditure = +1 √√ • Income – Expenditure = -1 X

Business Department 7

The Project S-curve

Formation Phase outDevelopment Implementation

Cost

Business Department 8

Project budgeting

• Level of detail – Outline budget– Long-range plan– Short-range plan

• Budget Structure– Compatible with existing systems– Excel system

• Information gathering– Experience– Estimates– Calculations

Business Department 9

Approaches to Budgeting

• Top-down budgeting– Experience of top and middle managers– Strategic long range plan

• Bottom-up budgeting– Project Manager – detailed budget proposals– Functional Manager – Midrange budget

• Iterative budgeting– Top management – set budget for each year– Selection of new projects – Guideline for budgeting

Business Department 10

Major Budgeting Processes

1. Resource Planning– People, Equipment, Materials, Overheads

2. Cost Estimating– Developing approximate cost for each

resource3. Cost Budgeting

– Relating cost estimates to schedule– Producing time-phased cost & cash-flow

predictions4. Cost Control

– Controlling cost in relation to project schedule

Business Department 11

1. Resource Planning

• Activity Owner– Who will do the work

• Knowledge workers– Other organisational units

• Consultants• Equipment• Materials

Business Department 12

2. Cost Estimating

• Analogous Estimating– Top-down approach– Limited information– Historical data

• Parametric Estimating– Selected quantifiable characteristics – Area, volume, location– Historical data

• Definitive Estimating– Bottom-up approach– Cost individual work items (WBS)– Bills of Quantities

• Sample

Business Department 13

2. Cost Estimating

2.1.1 New wire

2.1.2 Re wire

2.2.1 Water

2.2.1 Gas

3.1.1 Carpets

3.1.2 Laminate

3.2.1 Paper

3.2.2 Paint

House Refurbishment

2.0 Services1.0 Management 3.0 Decorating

1.1 Planning

1.2 Costing

1.3 Specify

2.1 Electrical

2.2 Plumbing

3.1 Floors

3.2 Walls

Quito D&B

Design team

TradesmenElectrician

Plumber

Control Account

Business Department 14

2. Cost Estimating

2.1.1 New wire

2.1.2 Re wire

2.2.1 Water

2.2.1 Gas

House Refurbishment

2.0 Services1.0 Management 3.0 Decorating

1.1 Planning

1.2 Costing

1.3 Specify

2.1 Electrical

2.2 Plumbing

3.1 Floors

3.2 Walls

Quito D&B

Design team

TradesmenElectrician

Plumber

Control Account Cost Breakdown Structure (CBS)

Business Department 15

WBS Activity Name Unit Unit Cost

Sub-total Total

1.0 Venue 630

1.1 Venue Hire 1 1 500 500

1.2 Furniture

1.2.1 Table Hire 10 5 50 130

1.2.1.2 Table Cloths 10 3 30

1.2.1.3 Candles 10 5 50

1.2.2 Chair Hire 50 2 100 100

2.0 Entertainment 750

2.1 Band Hire 1 500 500

2.2 DJ 1 250 250

3.0 Refreshments 1016

3.1 Food

3.1.2 Sandwiches 100 2 200

3.1.3 Canapé 500 1 500 700

3.2 Drinks

3.2.1 Wine 36 6 216

Soft Drinks 50 2 100 316

2396.00

Generating Budget

Business Department 16

Cost Estimate

WBS Code Cost Sub-total Total Resource

2.0 SERVICES

2.1 Electrical Electrician

2.1.2 New Wire

2.1.2.1 Lounge £500.00

2.2.2.2 Garage £500.00

£1000.000

2.1.2 Re-wire

2.1.2.1 Kitchen £600.00

2.1.2.2 Bedroom £300.00

£900.00

£1900.00

Donna

Business Department 17

3. Cost Budgeting

• Estimate overall Project cost• Estimate weekly/monthly cash-flow

– Pay suppliers– Pay Employees

• Ensure Cash is available• Ensure Spending control

Business Department 18

3. Cost Budgeting

Activity Dependency Duration Cost (£1000)

A - 5 1.5

B - 3 3.0

C A, B 8 3.3

D A 7 4.2

E - 7 5.7

F C, D, E 4 6.1

G F 5 7.2

31.0

Business Department 19

3. Cost Budgeting Network

A5 50

0 0 5

B3 30

2 2 5

E7 70

6 6 13

D7 125

6 1 13

C8 135

5 0 13F4 1713

13 0 17G5 2217

17 0 22

Business Department 20

EST Gantt ChartA

ctiv

ity

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 weeks

A

B

C

D

E

F

G

1.5k

3.0k

3.3k

4.2k

5.7k

6.1k

7.2 k

Business Department 21

LST Gantt ChartA

ctiv

ity

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 weeks

A

B

C

D

E

F

G

1.5k

3.0k

3.3k

4.2k

5.7k

6.1k

7.2 k

Business Department 22

S-Curve

0

5000

10000

15000

20000

25000

30000

35000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

Late start

Early start

Cumulative cash flow - S-curve

£

week

Business Department 23

Summary

• The importance of project budgeting• Identified activities associated with project

budgeting• Discussed the main techniques used in cost

estimating• Top-down, bottom-up & iterative budgeting• Construction of a Cost Breakdown Structure

(CBS)• Constructed a time-phased project budget• Constructed an S-Curve

Business Department 24

Take-a-break