Project Budgeting

1
Project Budgeting

• Dr. Dale Masel
• ISE 536
• January 24, 2004

2
Purpose of Budgets

• Plan for allocating organizational resources to
  project activities
• Budgets help tie project to overall
  organizational objectives
• Tool for upper management to monitor and guide
  projects
• Includes forecast

3
Developing the Budget

• Two Approaches
• Top-Down Budgeting
• Bottom-Up Budgeting
• Two methods usually give different estimates
• Bosses are typically optimistic
• Subordinates are typically pessimisticC.Y.A.

4
Work Element Cost Estimation

• Determine resource requirements and costs for
  each task
• fixed costs (e.g., materials)
• labor time
• labor rate
• equipment time
• equipment rate
• overhead
• GSA

5
Budgeting Options

• Activity-oriented budgets
• Based on historical data
• Expenses assigned to basic budget lines
• Program budgets
• Each project has its own budget
• Expenses by task and time period are shown

6
Cost Estimation

• Goal develop estimate of cash flows
• Typical Accuracy
• Planning Initial Evaluation 30-50
• Preliminary Conceptual Design 15
• Detailed Engineering Construction 5

7
Cost Estimation Methods

• Forms
• Cost Index
• Dimensionless number to indicate how costs and
  prices change from base year
• Cn Ck (In / Ik)

8
Cost Estimation Methods

• Unit Cost
• Uses a per unit factor
• Factor Technique
• Extension of unit method
• C S Cd S fmUm

9
Cost Estimation Methods

• Parametric Cost Estimation
• Application of statistical techniques to develop
  cost relationships

10
Learning Curve

• Typically, cycle time increases by a fixed
  percentage each time the total production
  quantity doubles
• aka Progress Curve
• Significant impact with new items

11
Other Factors Affecting Costs

• Changes in prices
• Waste
• Project Turnover
• Pressure

12
Budget Revisions

• Initial prediction can be adjusted up or down
• Size of deviation greater as project progresses
• Motivations