1. Business Department 1 Project Management C53PM Session 7 Project Budgeting Russell Taylor Business Department Staff Workroom E-mail: rtayl@borderscollege.ac.uk

2. Business Department 2 Session 7 Projects Budgeting –Chapter 7 "It's clearly a budget……… it's got a lot of numbers in it."

3. Business Department 3 Project Objectives Time CostQuality Meet quality and scope requirements Deliver project on time Deliver project within budget

4. 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

5. 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).

6. Business Department 6 Cost Planning Income – Expenditure = 0 Income – Expenditure = +1 Income – Expenditure = -1 X

7. Business Department 7 The Project S-curve Formation Phase out Development Implementation Cost

8. 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

9. 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

10. 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

11. Business Department 11 1. Resource Planning Activity Owner –Who will do the work Knowledge workers –Other organisational units Consultants Equipment Materials

12. 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

13. 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 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

14. 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 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)

15. Business Department 15 WBSActivity NameUnitUnit CostSub-totalTotal 1.0Venue630 1.1Venue Hire11500 1.2Furniture 1.2.1Table Hire10550130 1.2.1.2Table Cloths10330 1.2.1.3Candles10550 1.2.2Chair Hire502100 2.0Entertainment750 2.1Band Hire1500 2.2DJ1250 3.0Refreshments1016 3.1Food 3.1.2Sandwiches1002200 3.1.3Canapé5001 700 3.2Drinks 3.2.1Wine366216 Soft Drinks502100316 2396.00 Generating Budget

16. Business Department 16 Cost Estimate WBS CodeCostSub-totalTotalResource 2.0SERVICES 2.1ElectricalElectrician 2.1.2New Wire 2.1.2.1Lounge£500.00 2.2.2.2Garage£500.00 £1000.000 2.1.2Re-wire 2.1.2.1Kitchen£600.00 2.1.2.2Bedroom£300.00 £900.00 £1900.00 Donna

17. 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

18. Business Department 18 3. Cost Budgeting ActivityDependencyDurationCost (£1000) A-51.5 B-33.0 CA, B83.3 DA74.2 E-75.7 FC, D, E46.1 GF57.2 31.0

19. Business Department 19 3. Cost Budgeting Network A 5 5 0 0 05 B 3 3 0 2 25 E 7 7 0 6 6 13 D 7 12 5 6 1 13 C 8 5 5 0 F 4 17 13 0 17 G 5 22 17 0 22

20. Business Department 20 EST Gantt Chart Activity 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 weeks ABCDEFGABCDEFG 1.5k 3.0k 3.3k 4.2k 5.7k 6.1k 7.2 k

21. Business Department 21 LST Gantt Chart Activity 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 weeks ABCDEFGABCDEFG 1.5k 3.0k 3.3k 4.2k 5.7k 6.1k 7.2 k

22. Business Department 22 S-Curve Late start Early start Cumulative cash flow - S-curve £ week

23. 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

24. Business Department 24 Take-a-break