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Costing and Budgeting - Budgeting

July 1, 2008 | Author: admin | Filed under: Cost Management, Cost Estimating

Costing and Budgeting - Budgeting (#35 in the Hut A Project Management Primer)
By Nick Jenkins

Once you have costed your project you can then prepare an appropriate budget to secure the requisite funds and plan your cash flow over the life of the project. An accurate cost model will of course entail a fairly detailed design or at the very least requirement specification so that you can determine your scope of work. This is normally completed well into the design phase of the project.

The sad truth of the matter however is that more often than not you are required to prepare some sort of indicative budget before approval of the project — and you are often held to your original estimates. You must be extremely careful with initial estimates and always follow the “promise low /deliver high” commandment.

Costing and budgeting follow the iterative life cycle as do other tasks within the project. As you refine your design, so you will need to refine the costing which is based upon it.

As in scheduling, you need to build in adequate contingency (reserves) to account for unexpected expenditure. For example, if due to a failure in the critical path a task is delayed and a milestone (like software purchase) falls due in the month after it was scheduled. This can wreck your carefully planned cash flow. But if you have carefully budgeted your project then variations should be relatively easy to spot and cope with as they arise.

Just as in scheduling you should have regular budget reviews which examine the state of your finances and your expenditure to date and adjust the planned budget accordingly.

Next in the Hut A Project Management Primer:

Risk Management - Introduction

Previously in the Hut A Project Management Primer:

Costing and Budgeting - Costing

Nick Jenkins is an IT manager with 10 years experience in software development, project management and software testing. He’s worked in various fields of IT development in Australia, Britain and the USA and occasionally he learned something along the way. Now he lives on the banks of the Swan River in Perth, Western Australia, and he publishes the odd guide to help aspiring IT professionals. Nick’s website can be found at www.nickjenkins.net.

Related Articles

• Costing and Budgeting - Introduction
• Costing and Budgeting - Costing
• What Is Budgeting?
• What Is Cost Budgeting?
• Creating The Project Scope - Cost Budgeting

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