Lecture 7 - Planning Cost

Question 1

How do you plan for cost management?

Answer 1

It is the planning process that establishes the policies, procedures and documentation for planning, managing, expending and controlling project costs, given that different stakeholders:

➢Contribute different amounts of funding;
➢Measure costs differently;
➢Report costs in different ways;
➢Control costs at different times.

NOTE: can use the 7 ways of estimating costs

Question 2

What are the approaches to budgeting?

Answer 2

A budget is a formal written financial statement of management’s plans for the future expressed in financial terms

Approaches to budgets
➢Traditional — Previous year’s level of performance is thefoundation for next year’s figures

➢Zero based — Ignores previous results as each activity and outlay is justified. Each activity is recorded with zero spending to begin with

➢Program — Activities are grouped together for projecting costs generated by each program or major activity

➢Top down — Based on pooling the knowledge of senior managers & past results. Project costs are estimated & then passed to
lower-level managers who continue the breakdown into further estimates

➢Bottom up —Individual task budgets are estimated in detail by the people directly responsible for doing or managing the work.
Estimates are aggregated to give the total project cost

Question 3

What are the Adv and DisAdv of budgeting?

Answer 3

Advantages
➢Increase ability to improve decision-making processes
➢Effective means of cost control
➢More reliable profits can be determined

Disadvantages
➢Top to bottom support is difficult to get
➢uncertainity is involved
➢Can ignore cyclical fluctuations

Question 4

How can companies Manage Social, Environmental and Financial Performance Simultaneously

Answer 4

How companies make the trade-offs at various levels and simultaneously manage social, environmental and financial performance;

➢While the companies’ informal systems strongly promote sustainability, their formal systems seemingly have a very traditional focus on financial performance - Paradox
➢Managers operating under these paradoxical systems do not believe these systems to be in conflict, and they do not perceive a high level of tension