Project Budget Management PROJECT MANAGEMENT FOR DEVELOPMENT ORGANIZATIONS pm4dev, 2008 –management for development series

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Project Budget Management PROJECT MANAGEMENT FOR DEVELOPMENT ORGANIZATIONS pm4dev, 2008 –management for development series
  Project Budget Management PROJECTMANAGEMENT FOR DEVELOPMENT ORGANIZATIONS pm4dev, 2008 –management for development series ©  Project Budget Management PROJECT MANAGEMENT FOR DEVELOPMENT ORGANIZATIONS A methodology to manage development projects for international humanitarian assistance and relief organizations    © PM4DEV 2008 Our eBook is provided free of charge on the condition that it is not copied, modified, published, sold, re-branded, hired out or otherwise distributed for commercial purposes. Please give appropriate citation credit to the authors and to PM4DEV. Feel free to distribute this eBook to any one you like, including peers, managers and organizations to assist in their project management activities.  Project Budget Management PROJECT BUDGET MANAGEMENT A project budget is the total sum of money allocated for the particular purpose of the project for a specific period of time. The goal of budget management is to control project costs within the approved budget and deliver the expected project goals. Our definition of a successful project is one that meets four success criteria: that the project’s scope is delivered on schedule, it is delivered within budget and, once delivered, it meets the quality expectations of the donor and beneficiaries. For project managers to be truly successful they must concentrate on meeting all of those criteria. The reality is that most project managers spend most of their efforts on completing the project on schedule. They spend most of their time on managing and controlling the schedule and tend to forget about monitoring and controlling the budget. The focus of this chapter is on managing and controlling the project budget throughout the entire project life cycle while relating budget control to the other success criteria. Budget management consists of a series of tasks and steps designed to help manage the costs of the project, the steps are: •   Defining the Budget •   Executing the Budget •   Controlling the Budget •   Updating the Budget Inputs: Inputs for the project budget management include the following documents or sources of information: •   WBS •   Project contract or initial budget •   Resource requirements •   Resource cost estimates •   Activity duration estimates •   Historical information •   Market conditions •   Donor and organization policies  Project Budget Management •   Chart of accounts structure (COA) Outputs: The project team will use the above information to develop three important documents for the project: •   Cost estimates by activity •   the Project Budget •   the Budget Variance Report Inputs Process Outputs •   WBS •   Resource requirements •   Cost estimates •   Schedule •   Historical information •   Market conditions •   Policies •   Plan - Define and estimate the resource requirements and develop budget •   Do – Obtain approval, and publish budget, authorize expenses •   Check –Budget control and performance analysis •   Adapt – Update budget, set corrective actions •   Project Budget Baseline •   Budget variance report •   Budget updates Project Budgeting is performed at the initial stages of project planning and usually in parallel with the development of the project schedule. The steps associated with budgeting are highly dependent on both the estimated lengths of tasks and the resources assigned to the project. Budgeting serves as a control mechanism where actual costs can be compared with and measured against the budget. The budget is often a fairly set parameter in the execution of the project. When a schedule begins to slip, cost is proportionally affected. When project costs begin to escalate, the project manager should revisit the Project Plan to determine whether scope, budget, or schedule needs adjusting. To develop the budget, the applicable cost factors associated with project tasks are identified. The development of costs for each task should be simple and direct and consist of labor, material, and other direct costs. Cost of performing a task is directly related to the personnel assigned to the task, the duration of the task, and the cost of any non-labor items required by the task.  Project Budget Management DEFINING THE BUDGET The project manager is responsible to estimate the budget required to complete project activities. The Project Manager should allocate all costs to project activities, and all aspects of the project, including the cost of internal and external human resources, equipment, travel, materials and supplies, should be incorporated. The budget should be much more detailed and more accurate than it was on the project proposal. In the case the project manager starts her job with a contracted budget, project manager needs to review the assumptions made during the project proposal stage and verify that the agreed on scope can be accomplished in the contract budget. The Project Manager can use manual or automated tools to generate the budget estimate. The budgeting tools may be simple spreadsheets or complex budget estimating tool. For historical purposes, and to enable the budget to be refined, the Project Manager should always maintain notes on how this budget was derived. Cost estimating checklists help to ensure that all preliminary budgeting information is known and all bases are covered. The Project Manager must also include in the budget the cost of both the human resources and the equipment and materials required to perform the work. The method by which staff and products will be acquired for the project will directly affect the budgeting process.   A number of constraints, financial, political, and organizational, may dictate the methods by which resources such as personnel, equipment, services and materials are acquired. The Project Manager needs to be aware of existing resource acquisition policies, guidelines, and procedures. In addition, the preferences of the beneficiaries and/or the donor representatives may influence acquisition decisions. Information from similar past projects can be used to gain an understanding of budgeting strategies; those that were successful and applicable may be considered for implementation on the current project. As the budget estimate is being developed, additional tasks may be identified because the work is being further defined. It may be necessary to update the WBS and the project schedule to include the activities identified during budget estimating, such as equipment, materials, and other non-human resources. The budget management plan is a description of the method for how expenses will be managed, including a preliminary disbursement
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