Business Department 1 Project Management C53PM Session 7 Project Budgeting Russell Taylor Business Department Staff Workroom

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 £40mFinal £415m Sydney Opera House –Initial Budget $A6mFinal £A100m Londons Jubilee Line extension –Initial Budget £2.1bnFinal £3.5bn Millennium Dome –Construction costs £50mFinal grant £628m Channel Tunnel –Initial Budget £4.8bnFinal £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 out Development 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 resource 3.Cost Budgeting –Relating cost estimates to schedule –Producing time-phased cost & cash-flow predictions 4.Cost Control –Controlling cost in relation to project schedule

Business Department Resource Planning Activity Owner –Who will do the work Knowledge workers –Other organisational units Consultants Equipment Materials

Business Department 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 Cost Estimating New wire Re wire Water Gas Carpets Laminate Paper Paint House Refurbishment 2.0 Services1.0 Management3.0 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 Tradesmen Electrician Plumber Control Account

Business Department Cost Estimating New wire Re wire Water Gas House Refurbishment 2.0 Services 1.0 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 Tradesmen Electrician Plumber Control Account Cost Breakdown Structure (CBS)

Business Department 15 WBSActivity NameUnitUnit CostSub-totalTotal 1.0Venue Venue Hire Furniture 1.2.1Table Hire Table Cloths Candles Chair Hire Entertainment Band Hire DJ Refreshments Food 3.1.2Sandwiches Canapé Drinks 3.2.1Wine Soft Drinks Generating Budget

Business Department 16 Cost Estimate WBS CodeCostSub-totalTotalResource 2.0SERVICES 2.1ElectricalElectrician 2.1.2New Wire Lounge£ Garage£ £ Re-wire Kitchen£ Bedroom£ £ £ Donna

Business Department Cost Budgeting Estimate overall Project cost Estimate weekly/monthly cash-flow –Pay suppliers –Pay Employees Ensure Cash is available Ensure Spending control

Business Department Cost Budgeting ActivityDependencyDurationCost (£1000) A-51.5 B-33.0 CA, B83.3 DA74.2 E-75.7 FC, D, E46.1 GF

Business Department Cost Budgeting Network A B E D C F G

Business Department 20 EST Gantt Chart Activity weeks ABCDEFGABCDEFG 1.5k 3.0k 3.3k 4.2k 5.7k 6.1k 7.2 k

Business Department 21 LST Gantt Chart Activity weeks ABCDEFGABCDEFG 1.5k 3.0k 3.3k 4.2k 5.7k 6.1k 7.2 k

Business Department 22 S-Curve 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