Quản lí dự án - Chapter 4: Budgeting the project

Chapter 4Budgeting the ProjectIntroductionA budget must be developed in order to obtain the needed resources A budget is a plan for allocating organizational resources to the project activitiesA budget ties the project to the organization’s aims and objectives through organizational policyA budget acts as a tool for upper management to monitor and guide the projectMethods of BudgetingBudgeting is forecasting what resources the project will require, what quantities of each will be needed, when they will be needed, and how much they will costMost businesses employ experienced estimators who can forecast resource usage very wellBudgeting a project is more difficult than budgeting more routine activitiesBudgeting ProblemsProject are unique activitiesNo history to aid estimatorsProjects may be multi-year with cost escalationsChanges in technology, materials, pricesOrganization tradition impacts project budgetingHow overhead and indirect costs are chargedSpecific legal issuesAccounting idiosyncrasiesProject managers see costs differently than accountantsAccounts treat costs linearlyTop-Down BudgetingBased on collective judgments and experiences of top and middle managers Overall project cost estimated by estimating the costs of major tasksAdvantagesAccuracy of estimating overall budgetErrors in funding small tasks need not be individually identifiedDisadvantageAllows budget to be controlled by people who play little role in designing and doing the work required by the projectBottom-Up BudgetingWork breakdown structure (WBS) identifies elemental tasksThose responsible for executing these tasks estimate resource requirementsAdvantageMore accurate in the detailed tasksDisadvantageRisk of overlooking tasksCost EstimatingDetails of the process of estimating costsSome dangers of arbitrary cuts in the budgetDifference between activity budgeting and program budgetingWork Element CostingDetermine resource requirements and then costs for each taskFixed costsLabor time and labor rateEquipment time and equipment rateOverheadGeneral, sales, and administrativeFull cost budget is used by accounting to estimate the profit of the projectProject manager may also construct a budget of direct costsThis provides information required to manage the project without being confounded with costs over which he has no controlThe Impact of Budget CutsTop-down budgets are usually lower than bottom-up budgetsJob always looks easier, faster, and cheaper to the managerManagers are usually optimisticSubordinates are usually pessimisticTo resolve differenceSubordinate explains the reality of the taskBoth parties search for efficienciesResolving remaining difference depends on the type of projectActivity Versus Program BudgetingActivity oriented budgeting are based on historical data accumulated through an activity-based accounting systemExpenses assigned to basic budget linesLines are aggregated and reported by unitsWith program budgets, each project is divided by task and time period allows for aggregation across projectsBudget reports are shown both aggregated and disaggregated by regular operationsEach project has its own budgetTypical Monthly Budget for a Real Estate Project (Partial)Table 4-3Project Budget by Task and MonthTable 4-4Improving Estimates and ForecastsForms Learning curvesTracking signalsSlide on eachFormsA form for project resource needs might include:People – managers, technical and non-technicalMoneyMaterials – facilities, equipment, tools, spaceSpecial servicesAnd might identify:Person to contactWhen neededHow many/much neededWhether availableForm for Gathering Data on Project Resource NeedsFigure 4-2Learning CurvesHumans learn when they repeat a taskIt has been found that unit performance improves by a fixed percent each time total production doublesEach time the output doubles, the worker hours per unit decrease by a fixed percentage of their previous valueThis percentage is called the learning rateLearning CurveswhereTn = the time required to complete the nth unitT1 = the time required to complete the first unit r = log(learning rate)/log(2)Tracking SignalsRandom error: there is a roughly equal chance that estimates are above or below the true valueRandom errors cancel outBias: if the over/under chances are not equal or the over/under errors are not the same sizeA tracking signal number can reveal if there is a systematic bias in cost and other estimatesAnd whether the bias is positive or negative By observing their own errors a project manager can learn to make unbiased estimatesTracking Signal CalculationFigure 4-3Other Factors Influencing the Success of a Project Changes in resource pricesEstimate rate of price change individually for inputs that have significant impact on costsWaste and spoilageTeam member turnover costsUsing “mythical man-months”Organization climateJust bad luckBudget Uncertainty and Project Risk ManagementBudget is an estimate made under uncertaintyRisk pervades all elements of a projectRisk is particularly an issue with performance, schedule, and budgetsBudget UncertaintyPrices may escalateDifferent resources may be requiredProject may take more or less timeImpacts indirect costsEstimate of Project Costs with Uncertainty ShownFigure 4-4Three Basic Causes for Change in Projects and Their BudgetsErrors made by cost estimator as to how to achieve tasks.New knowledge about the nature of the performance goal or setting.A mandatea new law or standardHandling ChangesAccept a negative change and take a lossLeast preferred wayPrepare ahead of time by including provisions for such change in contractBest approachMore difficult are those resulting from misunderstood assumptions, technological uncertainty, and mandatesState assumptions and note that if they change, project will have to be adjustedMandates are the most difficult to accommodateDivide project into shorter segments and contract sequentiallyRevising BudgetsIf the changes are confined to early elements of the project and will not impact the rest of the project, then the new budget is the old budget plus the changesFor change that impacts rest of project, the new budget id the accumulated costs to date plus the previous estimates of the rest of the budget multiplied by some correction factor for the systemic changeFor change to impact specific elements of remaining project tasks, new budget is the actual costs to date plus the expected costs for the remaining project tasksProject Risk Simulation with Crystal BallA mathematical model of the situation is constructedA simulation is run to determine the model’s outcomes under various scenariosThe model is run repeatedlyOutputs of the model are used to construct statistical distributions of items of interestRisk profiles of the outcomeRisk profiles can be considered by the manager when considering a decisionPsychoCeramic Example From Chapter 1: Single-Point EstimatesTable 4-5PsychoCeramic Example: Three Cash Inflow EstimatesTable 4-6PsychoCeramic Example: Cash Flows and Inflation EstimatesTable 4-7PsychoCeramic Example: Frequency Chart of Net Present ValueFigure 4-9PsychoCeramic Example: Summary StatisticsFigure 4-10CopyrightCopyright © 2014 John Wiley & Sons, Inc.All rights reserved. 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