PROJECT COST ESTIMATION, BUDGETING & CONTROL
APPRAISAL OF METHODS
The achievements of the estimation and charge of resources include a major impact on the overall achievement of the job. The overall process by which assets are controlled is often known as budgeting. The estimate can be described as model of the fee performance in the project.
Estimations do not can be found in seclusion and numerous factors impinge on the estimation. Time, source availability, elements, equipment requirements and top quality all include a major impact on the estimate. The budget serves as a baseline to get measurement. Deviations of cost plans via original estimations should be analyzed and assessed.
As projects are usually funded from external sources, the importance of the spending budget from the customer's point of view is becoming pervasive. Finances are often used as a direct jacket that may inhibit the investigation of opportunities that arise within a project.
Finances should always be investigated to determine the predicted resource use at the relevant stage of execution. This allows corrective action to be taken prior to budget can be exceeded.
COST MANAGEMENT METHODS
Development of a project budget is somewhat more difficult than an working budget. The cabability to use earlier data is limited and the make use of this data for task budgeting needs to be undertaken with care.
Past data can serve as helpful information for the budget intended for the project in question. Many corporations have got extensive historic records of past assignments that allow information to become transferred from project to project.
In project spending budget inflows and outflows has to be task linked. The WBS provides the bank account numbers for accumulation with this information.
LEADING DOWN SPENDING BUDGET
Cost estimates are established at a senior level based on wisdom and experience. These estimations are consecutively, sequentially broken down by simply lower level managers.
It is assumed that this process will prevent lower level managers from building an excessive scope based contingency in estimates.
To keep this contingency intense rivalry can occur between lower level managers.
This method gives some balance to the spending budget process. This process also minimizes the need for too much detailed estimates.
BOTTOM UP BUDGETING
Much needed tasks will be costed and added to make up the project price range. Man-hours and materials are costed for direct job items and accumulated to provide the project budget.
By the end of this method, management will certainly assign indirect costs, a contingency and profit to determine the final price for undertaking the task.
It is essential that items are included. Budgetary games do occur including running and lobbying.
This method can be associated with participative management and supplies the possibility of higher commitment towards the budget simply by lower purchase managers.
SPENDING BUDGET REQUESTS
To get more routine procedures, previous costs are scaled by an predetermined percentage.
ACTIVITY COMPARED TO TASK FOCUSED BUDGETS.
In normal operating companies, activity based finances are set up by what is carried out, for example telephone, materials, clerical work and so forth A second procedure identifies the duties to be achieved and allocates resource based on these jobs. This approach is very useful for cash flow projections.
A much more general way is to determine project budgets and aggregate these right into a program price range.
The first step in developing a budget requires estimation, a forecast from the resources necessary to undertake the task on the job.
Estimates are used for many purposes on tasks. The purpose of the estimate is usually a function in the lifecycle level of the task. A number of methods are used to estimate the cost of a project, ranging from particular area to definitive estimates.
ESTIMATE ACCURACY AND RELIABILITY
Estimate quality is based on
u The time readily available.
o The information available.
u The techniques...