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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
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