0% found this document useful (0 votes)
54 views5 pages

BSBPMG533 Task 1

Budgeting is an important part of project management. The key steps in the budgeting process are to: 1) identify the project scope, 2) define required resources such as staffing, equipment, and training costs, 3) assign dollar amounts to the resources after research, 4) build the budget and note assumptions, and 5) obtain approvals and implement the budget while tracking costs. Key performance indicators are used to understand shifts in the budget and budget variances which helps improve future budgeting. Milestones in the budget indicate progress towards the overall budget goal. Budgetary control and continually practicing budgeting skills helps managers improve efficiency. Spreadsheets are useful for budgeting as data can be linked between worksheets and formatting helps

Uploaded by

ryanmai2804
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
54 views5 pages

BSBPMG533 Task 1

Budgeting is an important part of project management. The key steps in the budgeting process are to: 1) identify the project scope, 2) define required resources such as staffing, equipment, and training costs, 3) assign dollar amounts to the resources after research, 4) build the budget and note assumptions, and 5) obtain approvals and implement the budget while tracking costs. Key performance indicators are used to understand shifts in the budget and budget variances which helps improve future budgeting. Milestones in the budget indicate progress towards the overall budget goal. Budgetary control and continually practicing budgeting skills helps managers improve efficiency. Spreadsheets are useful for budgeting as data can be linked between worksheets and formatting helps

Uploaded by

ryanmai2804
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

ASSESSMENT TASK 1

1. Discuss the key purpose and objectives of budgeting in project management.


1) Provide structure. A budget is especially useful for giving a company guidance
regarding the direction in which it is supposed to be going. Thus, it forms the
basis for planning what to do next.

2) Predict cash flows. A budget is extremely useful in companies that are growing
rapidly, that have seasonal sales, or which have irregular sales patterns. A budget
is useful for predicting cash flows, but yields increasingly unreliable results
further into the future. Thus, providing a view of cash flows is only a reasonable
budgeting objective if it covers the next few months of the budget.

3) Allocate resources. Some companies use the budgeting process as a tool for
deciding where to allocate funds to various activities, such as fixed asset
purchases. Though a valid objective, it should be combined with capacity
constraint analysis (which is more of an industrial engineering function than a
financial function) to determine where resources should really be allocated.

4) Model scenarios. If a company is faced with a number of possible paths down


which it can travel, you can create a set of budgets, each based on different
scenarios, to estimate the financial results of each strategic direction. Though
useful, this objective can result in highly unlikely results if management lets itself
become overly optimistic in inputting assumptions into the budget model.

5) Measure performance. A common objective in creating a budget is to use it as the


basis for judging employee performance, through the use of variances from the
budget. This is a treacherous objective, since employees attempt to modify the
budget to make their personal objectives easier to achieve (known as budgetary
slack).

2. Outline the main steps in the budgeting process for a project.

1
Step 1: Identify project scope: An ideal approach is to build out a work breakdown
structure (WBS) for the project. The work breakdown structure allows you to capture all
work involved in delivering a project at a detailed level. From there, it becomes much
easier to assess the resource requirements for budgeting

Step 2: Define resources


1) Staffing: The foremost and most expensive cost is staffing. Does your project
require additional team members? If so, how many and for how long? If the new
staff will be paid on an hourly basis, the length of time should be in hours.
2) Equipment: Equipment can take the form of machinery like an excavator for a
construction project, or it can be the addition of tools like project management
software. What equipment is required for your project? Capture this in your list of
budget items.
3) Sales and marketing: The nature of your project could involve sales and marketing
costs. For example, when launching a new product, an advertising budget
becomes a necessity. Some projects may not involve sales or marketing costs, but
if they do, be sure to factor in expenses like sales commissions.
4) Training: When a project is undertaken, usually some degree of organizational
change management is introduced. Changes require training. The more extensive
the change, the greater the training investment.
5) Miscellaneous items: Another set of project cost consideration is dependent on
your particular project needs. If you must travel for the project, then travel
expenses must be part of the budget. If outside companies are engaged, their fees
must be accounted for.

Step 3: Assign amounts: Determining dollar amounts can be hard; that’s where research
comes into play. Investigate historical budgets for similar projects in the past. Perform
research online or talk to team members who have insight into the various items and
related costs for the project. Consequently, it’s effective to create a model in project
management software or a spreadsheet to estimate staffing costs across the timeframe of
the project using an average salary or industry norms for the positions.

Step 4: Build your budget: As part of building your budget, note any assumptions that
went into the figures. This is important because once a project begins, some of the

2
assumptions may hold true and others will not, resulting in actual project spend diverging
from the budget. By capturing the assumptions, you’ll understand why the budget didn’t
reflect reality.
Step 5: Obtain approvals and implement: Once the budget is approved, it’s among the
project manager's responsibilities to oversee it. It's a good idea to use project management
software to track costs. As the project management triangle dictates, if teammates start to
fall behind on deliverables or unexpected delays arise, costs will be affected.

3. Discuss why key performance indicators are used in budgeting.


Shifts in budget. Budgets should be set at the beginning of your project. Unforeseen
issues can arise throughout, and as a result, budgets may need to be modified or
reallocated to support shifts within the project. It’s also important to understand why,
how, and where the budget shifts occurred, which is why cost-related KPIs are so
beneficial. Here are a few examples:
1) Cost Performance Index (CPI) - Ratio showing costs so far vs. the amount to be
earned
2) Budget variance - How the actuals compare to estimate as the project advances
3) Budget adjustments - How often amounts have changed since the start

This will help you to budget more effectively for future projects.

4. Explain the use of milestones in budgeting.


Budget milestones are specific points along a project budget. They are your short terms
goals that lead to your overall project budget. These milestones act as major project
progress points and indicate your budget progress. If you achieve the milestones along the
way, then you are moving in the right direction to achieve your overall project budget.

5. Explain the importance of budgetary control.


Excel yourself: After using budgetary control techniques in your business, you will
definitely learn the skills of excel yourself because we all know that a budget is based on
estimates, it may or may not be true. But continually practise of making good budget and
apply in organisation, manager can learn skills and experience for increasing the
efficiency in every work of company. Meaning of this, manager will get positive
approach through budgetary control.

3
6. Explain two key features of using spreadsheets for developing budgets.
a) Linking related data. Another benefit of using spreadsheets is that you can link
worksheets together. This is useful for things like cash flow, where you need to
link the actual balance in the bank at the end of last month to the opening balance
for this month. To do this, just press = in the cell that you want to link from, and
put the cursor in the cell you want to link to. This works well for budgets too,
especially if you have completed a production budget in one worksheet, and this
needs to link to the master budget. Then, if the production budget changes, it
automatically updates the master budget.

b) Useful formatting. When working with lots of financial data, you’ll want to make
it as easy to navigate as possible. Thankfully, most spreadsheet software offers a
variety of tools to help you make your spreadsheets visually appealing and easy to
understand. For example, you can use Ctrl + B when a cell is selected to make all
of the text in that cell bold, which is useful for quickly helping titles and labels to
stand out. You might also choose to colour code cells, and then sort your data by
colour.

7. Explain two methods for conducting project cost estimating.


a) Decision-Making Method. Some decision techniques are unanimity, majority,
plurality, points allocation, and dictatorship. For unanimity, everyone must agree;
there is a shared consensus. A majority or plurality is usually determined by a
vote. For a majority, the decision must be agreed to by more than half the
participants.
b) Factor estimating, also known as top-down estimating, is based on limited project
scope. It is generally used in the identification phase. It uses rules of thumb,
parametric models or historical databases to provide relevant cost data.

8. Explain earned value management and its application in evaluating costs.


EVM is a management approach which upon incorporating any type of program –
provides all levels of management with early visibility into cost and time related
problems. EVM helps provide the basis to assess work progress against a baseline plan,

4
relates technical, time and cost performance, provides data for pro-active management
action and provides managers with a summary of effective decision making. The value-
added approach helps achieve greater visibility and control of the project activities which
helps in responding to issues early on, thus making it possible to meet the project
timelines. It provides a clear communication of the activities involved and improves
project visibility and accountability.

9. Explain project cost management and its application in evaluating costs.


Cost management is concerned with the process of finding the right project and carrying
out the project the right way. It includes activities such as planning, estimating,
budgeting, financing, funding, managing, controlling, and benchmarking costs so that the
project can be completed within time and the approved budget and the project
performance could be improved in time. Cost management covers the full life cycle of a
project from the initial planning phase towards measuring the actual cost performance and
project completion.

10. Outline four key responsibilities of a project manager in relation to cost management.
Project manager role is to define and allocate a clear and sufficient budget that contributes
to exploiting available opportunities and achieving the project goals. The main idea of
this PM task is to ensure that you do not spend more than you are entitled to; otherwise,
your sponsor will be unsatisfied with the outcome produced at the project’s end.

You need to learn to manage project finances carefully, by creating cost spreadsheets
and estimates while ensuring that project expenses are budgeted upfront. If your budget
is exceeded, you need to immediately communicate with your sponsor and avoid
complications in the future. If you strictly follow this project manager role, you will do
your project within budget, and no over-estimate will appear. And do not forger to
engage your deputy and analysts in performing the cost analysis.

You might also like