Project Management Foundations: Budgets

Question 1

What are the three major constraints you must manage to control your project?

Answer 1

Budget, scope, and schedule.

Question 2

What are some suggestions for creating a project budget?

Answer 2

First, focus on the triple constraints: the schedule, scope. An analysis of what you can and can’t possibly accomplish, and what the costs are, is important when creative an accurate budget.

Second, think about your project from start to finish. Ask the following questions: How much money has been allocated? What expenses are mandatory? Which expenses aren’t vital for success? Can I create realistic estimates, and if not what research do I need to do to produce them? Has this kind of project been done before, and can you obtain historical cost information?

Third, look at your major expenditures. The typical budget specifies costs, for labor, materials, costs of financing, and other costs such as travel and communications.

Four, discuss contingency dollars with your sponsor.

Lastly, consider the information you’ll need to support the cost and benefit data for the project. This should come from your project sponsor and major stakeholders, and should be in a business case for the project.

Question 3

What are the steps you need to follow so your project budget fits the bill?

Answer 3

First, create an initial budget from your work breakdown structure.

Next, you compare your initial budget by comparing your results to cost data taken from other projects.

Question 4

What project management deliverable besides the WBS should be used to refine the project budget?

Answer 4

Schedule, risk management plan, procurement, and quality plan.

Question 5

What are some typical costing standards?

Answer 5

The first is your organization’s internal costing or accounting practices. Every organization has some and they’ll guide your budgeting process. The second standard is how your company budgets for preplanned and last minute costs for a resource. The third most common costing standard is how or if the cost of people is tracked and charged to the project. The last common standard to verify is your accounting department’s preferred costing standard for things like office space, telephone charges, or other items.

Question 6

What are enterprise environmental factors?

Answer 6

Several factors that will influence your company’s behavior and will need to be considered when building a viable, acceptable project budget.

Question 7

What are two common internal enterprise environmental factors?

Answer 7

First, the culture of your organization, as it will determine how your budget will be reviewed. The expectations for your budget’s level of detail, and when you’ll have to plan for and engage in competitive bidding for vendor products is important to know.

Second, budgeting cycles can have a substantial influence on your budget and the running of your project.

Question 8

What are some external enterprise environmental factors?

Answer 8

First is the overall market conditions. Second is your competitors. Third, inflation may be present and increases the cost of services and goods may have to be baked into your project budget. Finally, international considerations may need to be taken into account.

Question 9

What are two concepts that form the basis of relevant accounting rules?

Answer 9

Capital costs and operating costs.

Question 10

What are capital costs?

Answer 10

Capital costs, or CapEx, is money that’s allocated for buying things to create future benefit in an organization like buildings, machinery, software, etc.

Question 11

What are operating costs?

Answer 11

Operating costs, or OpEx, are expenditures needed for the day-to-day running of the business like wages, costs for utilities or maintenance, etc.

Question 12

You want to align your project budget with your sponsor’s expectations because …

Answer 12

You can then help set or adjust your sponsor’s expectations.

Question 13

What are the three predominate types of project estimates?

Answer 13

The first is the rough order of magnitude, or ROM, estimate. ROMs are built at the project initiation stage and are usually based on knowledge of similar projects. They provide an initial cost to determine if your project is viable. The rule of thumb with ROM estimates ifs that they will come in at a range of minus 25% to plus 75%. They are given based on minimal information about your specific product features and capabilities.

The second type of estimate is the budgetary estimate. This is a refinement to the ROM estimate that will assist you and your management team to determine if it’s still smart to proceed with your project. With budgetary estimates, you should expect to have a variation of minus 15 to plus 15.

The third and final project estimation type is a definitive estimate. This should give you an accurate estimate of your project costs. The target variance for the definitive estimate is minus 5% to plus 15%.

Question 14

What are some approaches for building your project estimates?

Answer 14

First is expert judgement. The second technique is known as analogous estimating. The third is parametric estimating. This uses industry specific mathematical formulas to come up with estimates.

Bottom up estimating is where detailed costs are taken from the lowest level of your work breakdown structure. The costs are then summarized or rolled up to higher levels of the structure. Only use bottom up estimating when you have the appropriate detail to support the approach after detail design of your project.

Question 15

What is the three point estimating technique?

Answer 15

You ask a person for three estimates. The pessimistic, most likely, and optimistic cost for each task. Once you’ve gathered the three estimates, you can apply one of two formulas. These formulas calculate the expected activity cost using an average of the three estimates. The first is the triangular approach. The formula is optimistic + most likely + pessimistic over 3.

The second alternative is a weighted average or the beta distribution estimate which is optimistic + 4x the most likely + pessimistic over 6.

Question 16

What is the best estimated structure?

Answer 16

It involves multiple estimation points such as a rough order of magnitude, budgetary, and definitive estimates.

Question 17

How do you build a cost forecast?

Answer 17

First, ensure that you have all of the cost outlays captured in your project schedule. A project schedule is made up of all the tasks, resources, and cost estimates you need for your budget.

Second, build a cost forecast chart. Next, group similar cost types together in your work breakdown structure.

Question 18

How can you use the information in your cost forecast to control your project?

Answer 18

You can anticipate milestone payments to vendors. You can also track actual costs on your cost forecast chart.

Question 19

If you want to add contingency dollars to your budget, what should you do?

Answer 19

You should clearly communicate the need for contingency dollars as a separate budget item, detail when those contingency dollars may be needed, and highlight the task areas where you use the contingency budget.

Question 20

What are some tips that make difficult budget conversations easier?

Answer 20

First, use different estimation techniques to validate your budget. Determine if the budget’s constraints enable you to practically deliver the project scope. Second, confirm the costs for all facilities and materials you’re going to need. And finally, try to find data from prior projects and current projects.

Question 21

What are some budget management steps you can apply if you’re managing an Agile project?

Answer 21

First, don’t worry about creating a detailed budget. As scope can be a moving target, focus on the size of the Agile team, the number of hours a week they’re planning to work, and create a resource cost plan. Second, after each Agile sprint when features are re-prioritized, added, or subtracted from your scope, make any necessary adjustments to your budget for staffing changes, equipment requirements, or other items necessary to produce each feature. Last, track your team’s actual production of features against their plan and make adjustments as necessary to refine your cost projection as you proceed through the project.

Question 22

When building a cost forecast, you should first ensure you have all of the ____ captured in your project schedule.

Answer 22

Cost outlays. Outlays are the basis of spending on your project, and the timing for that spending is reflected in your schedule.

Question 23

What are the two major factors that need to be considered when building and managing your project budget?

Answer 23

Determining the overall level of detail you’re expected to manage and how you will track personnel hours dedicated to your project.

Question 24

How is the level of detail determined?

Answer 24

First and foremost, you company culture. The second factor is the presence of contracts.

Question 25

What are the three primary contract types?

Answer 25

Time and materials contracts require that resources and spending be tracked in detail, so they can be billed out to the client.

Cost-plus contracts are similar to time and materials contracts. Costs have to be tracked in detail to bill to the client with the plus factor being a predetermined profit margin that is at or over an above costs.

Fixed-price contracts may not dictate the same structure for cost tracking.

Question 26

What is a bloated budget?

Answer 26

When you can see that your actual spending is coming in way over forecast.

Question 27

What is required to achieve budget recover?

Answer 27

It’s important to understand the cause of bloating. Challenge the fundamentals of your budget. Engage in some cost-saving techniques, like taking out some of the project scope.

Question 28

What is earned value budget tracking?

Answer 28

Earned value budget tracking, also called earned value analysis, allows us to understand how much a project has earned based on the tasks you have finished. It looks at the project from cost, schedule, and work completed metrics and can determine progress and spending variables from your original plan.

Question 29

What three measures is earned value based on?

Answer 29

First, you measure planned value, or PV. That’s how much you plan to spend to complete the tasks scheduled at any point in time. The second measure is called earned value, or EV. That’s the cost you allocated to tasks that have been completed at any point in time. The third measure is the actual cost or AC.

Question 30

What are good sound and complete budget reporting habits.

Answer 30

First, ensure that you aren’t missing some commonly overlooked items like overtime, pay raises, and contract cost of living increases. Next, compare your actual spending to the work you’ve actually accomplished. Third, produce detailed reports for areas where you are very cost sensitive. Lastly, be consistent.

Question 31

What is a resource histogram?

Answer 31

This is a diagram that compares budgeted estimates with actuals to see if there’s any variance.

Question 32

How do you properly perform funding limit reconciliation?

Answer 32

First, confirm how your organization performs contract management. Secondly, find out how your organization pays its vendors. Third, consider what processes will be expected of you when managing your project’s cash flow. Lastly, another hurdle that can trip up project managers is the finance department’s need to have receipts or purchase orders to process invoices.

Question 33

How do you apply foresight to your budget status?

Answer 33

First, try to think ahead as you prepare to manage and control your project execution. Second, for budget management you should remember that not all tasks can be affected by a change in staff, or the number of staff members you apply.

Question 34

How do you fine tune your budget foresight?

Answer 34

Use a mix of three types of reports in your project manager’s tool kit. There are project reports, which looks from the beginning of your project to now. There’s a status report, which asks where we are at the moment. And there are the forecast reports, which take your actual spending and compare it to your plan to plot what future spending might be.