Topics: Costs, Cost accounting, Project management Pages: 16 (2730 words) Published: December 11, 2012


The success of the estimation and control of resources have a major impact on the overall success of the project. The overall process by which resources are controlled is often termed budgeting. The estimate is a model of the cost performance of the project.

Estimates do not exist in isolation and a number of factors impinge on the estimate. Time, resource availability, materials, equipment requirements and quality all have a major impact on the estimate. The budget serves as a baseline for measurement. Deviations of cost plans from original estimates should be examined and analyzed.

As projects are usually funded from external sources, the importance of the budget from the client’s point of view has become pervasive. Budgets are often used as a straight jacket that can inhibit the investigation of opportunities that arise during a project.

Budgets should always be investigated to determine the expected resource usage at the relevant stage of execution. This allows corrective action to be taken before the budget is exceeded.



Development of a project budget is more difficult than an operating budget. The ability to use past data is limited and the use of this data for project budgeting should be undertaken with care.

Past data can serve as a guide to the budget for the project in question. Many corporations have extensive historical records of past projects that allow information to be transferred from project to project.

In project budgeting inflows and outflows must be task linked. The WBS provides the account numbers for accumulation of this information.


Cost estimates are determined at a senior level based on judgment and experience. These estimates are successively broken down by lower level managers.

It is assumed that this process will prevent lower level managers from building an excessive scope based contingency into estimates.

To maintain this contingency intense rivalry can occur between lower level managers.

This method provides some stability to the budgeting process. This method also reduces the need for excessively detailed estimates.


Elemental tasks are costed and added to form the project budget. Man-hours and materials are costed for direct work items and accumulated to provide the project budget.

At the conclusion of this process, management will assign indirect costs, a contingency and profit to determine the final cost for undertaking the project.

It is essential that all items are included. Budgetary games do occur including scaling and lobbying.

This method is associated with participative management and provides the possibility of greater commitment to the budget by lower order managers.


For more routine operations, previous costs are scaled by an predetermined percentage.


In normal operating companies, activity based budgets are assembled by what is done, for example phone, materials, clerical work etc. A second approach identifies the tasks to be accomplished and allocates resource based on these tasks. This approach is particularly useful for cash flow projections.

A more general approach is to determine project budgets and aggregate these into a program budget.



The first step in developing a budget requires estimation, which is a forecast of the resources required to undertake the work on the project.

Estimates are used for many purposes on projects. The purpose of the estimate is often a function of the lifecycle stage of the project. A number of methods are used to estimate the cost of a project, ranging from specified area to definitive estimates.


Estimate quality is based on

o The time available.

o The information available.

o The techniques...
Continue Reading

Please join StudyMode to read the full document

You May Also Find These Documents Helpful

  • Pmbok Essay
  • Pmbok and Prince2 Essay
  • pmbok or prince2 Essay
  • Essay about Pmbok Chapter 2 Summary
  • Essay about Pmbok Summary
  • Essay about Pmbok Integration and Scope Management
  • Essay on PMBOK 5TH Edition
  • PMP Prep_4th Ed. PMBOK Essay

Become a StudyMode Member

Sign Up - It's Free