Week 6 Flashcards
what is a budget?
A budget is a plan for allocating resources to a project
- Managers must work within budget constraints, whilst senior management must be careful not to over / under-fund
projects
- The budget is also a monitoring and control mechanism, as it allows resource use to be monitored carefully through comparisons between actual and planned use of resources
when developing a budget what must one do?
- Forecast what resources the project will require
- Calculate the required quantity of each
- Decide when they will be needed
- Understand how much they will cost
- An easy way to develop a budget is to cost the Work Breakdown Structure (WBS)
- We use either Top-Down or Bottom-Up Budgeting to calculate the cost of each activity within the WBS
what is top-down budgeting?
- High level cost estimate for entire project is
created based on opinions and experiences of middle and senior managers - Lower managers then breakdown this overall cost estimate into estimates for specific tasks, this is based on their experiences of estimating past tasks
= Process continues to lowest level
what are the ADV and DISADV of top-down budgeting?
ADV:
- overall budget is v accurate
- no aspect of the project is overlooked
- experience of snr management ensures ‘hidden’ activities are included in overall estimate
DISADV:
- senior managers tend to underestimate costs
- more difficult to get buy-in
- can lead to competition between managers as each manager will want larger share of budget
what is bottom-up budegting?
- Tasks, schedules and initial budgets are constructed based on WBS to create Work Packages
- Lower managers are then asked about the time and resources needed for work packages
- Discussions between senior and lower managers are used to resolve differences of opinion
- Overheads and profits are added, alongside a project reserve for contingencies
- This forms the final project budget
what are the ADV and DISADV of bottom-up budgeting?
ADV:
- more accurate, as those doing the work will know what’s required
- increases jnr, management experience
- greater buy-in from lower managers as they’re more involved
DISADV:
- more difficult
- risk that all elements of project arent included
- snr managers more likely to cut the budget
what are the steps to negotiating a compromise in budget estimation?
- Superior and subordinate meet
- Review the WBS and each others’ estimates
- Superior is “educated” by subordinate
- Superior increases their estimates
- Superior increases their estimates
- Subordinate decreases their estimates
= this can be a very time consuming process
what is work element costing?
Each work package in the WBS is evaluated
in terms of the resources it requires and then
the cost of these resources
- examples include direct costs such as materials, administrative costs such as senior managers, HR also labour costs including overheads
= very key to include personal time when estimating labour costs, as if you don’t you’ll massively underestimate cost of project
what is category budgeting?
traditional organisations budget in a category-orientated fashions, where expenses are assigned to budget lines such as phone bills, materials, personnel
- these are then grouped into categories and assigned to individual departments
why is category orientated budgeting not suitable for projects?
- Project budgets were split across many different organisational departments, so who is responsible? who is in control?
- Each department had complete control over their budget
- Very difficult to see the actual size of expenditure activities
what is project budgeting?
as a result of category budgeting not being suitable for projects, it resulted in the introduction of project budgeting =where budget is divided by activity rather than by department.
what is scheduling?
Scheduling uses the work breakdown structure (WBS) to create a timetable for the project
- Scheduling is the main tool for monitoring and controlling the project, as projects are complex with activities changing on a daily basis
– Keeping on top of the schedule is paramount to project success
what do scheduling techniques use?
Network Diagrams to show the network of activity and event relationships
- These diagrams show:
1. The sequence of these tasks
2. How tasks within a project are related
3. Tasks that precede / follow other tasks
describe scheduling terminology of activity, event, network, path, critical, critical path?
Activity: A task (or set of tasks) required by the project that use up resources and take time to complete.
Event: a result of completing 1 or more activities
Network: the arrangement of all activities that define a project, arranged in a sequence L to R
Path: sequence of activities
Critical: Activities / events / paths which will delay the completion of the project if late
Critical Path: The sequence of critical activities beginning at the project’s start to its finish
what can activities in scheduling have?
- A successor but no predecessor
- This type of activity is placed at the start of the network - A predecessor but no successor
- This type of activity is placed at the end of the network - Both a predecessor and a successor
- This type of activity is placed in the middle of the network
