Project Budgeting

BudgetingTHE project budget is the total sum of money allocated for the particular project for a specified period of time. The budget is used to quantify the resources required in a definite period of time to accomplish the scope of work defining the project.

A successful project must meet the success criteria of being delivered on schedule, within budget and the quality expectations as set by the project owners. To prepare the project budget, the applicable cost elements that are associated with the project must be known.

The process of assigning cost to each activity of the project consists of the cost of labour, material and other direct costs. The cost of performing the activities is directly related to the type of personnel assigned, the duration of the tasks and the cost of any non- labour items and other factors required to successfully accomplish the task.

Cost Estimation
The cost estimate is a well formulated prediction of the probable cost of the project. The cost estimate accounts for all the items of work that will be required to complete the project the prescribed work packages. The estimates are prepared by breaking down the work packages using standard formats and assigning cost to each of the work package from experience and data base of costs.
Different Types of Costs
The typical cost elements in a project which must carry costs adding up to the project budget will normally include the following items.
 Equipment (purchase, rental, lease)
 Facilities (office, space, warehouses)
 Labour (employees, contractors)
 Trainings
 Others (logistics, consumables, transportation, communication)

The cost estimator should allocate cost to all the project activities, including all aspects of the project like human resources, equipment, travel, materials and supplies. All the assumptions that are associated with the estimates must be clearly stated to allow for easy monitoring and control.

Cost Estimating Techniques
There are four methods for estimating cost, which are described below. They are expert judgment, analogous estimate, parametric estimate and bottom-up estimating techniques. The key inputs in any cost estimating technique will include the project scope of work, the work breakdown structure, the project management plan (schedule, management plan, staffing plan, risk management plan, etc).

Expert Judgment: This involve the use of knowledge gained from past project management experience. This can be used in conjunction with other objective estimation techniques to provide valuable information about the project environment and information about prior projects of comparable size.

Analogous Estimating: This method makes use of metrics from previous, similar projects as the basis for estimating the current project. It uses the actual cost of previous similar projects as a baseline and adjusts for known differences (size, scope, duration, and environment).

Parametric Estimating: This method makes use of standardized parameters that defines the cost of a task for a specified output. It is an estimating technique that uses a quantitative approach that is based on the quantity of work and the productivity rate per unit of work. For instance, the cost of training one person is a rate that includes the people, material, and equipment costs that once it is multiplied for the required number of people that need to be trained gives the total budget.

Bottom – up Estimating: This involves making estimates for all the individual work packages and their activities with the greatest level of details and adding up to get the total project budget. A detailed work breakdown structure is needed to determine all the work activities and the resource requirements are assigned to them for costing.

The cost estimation process is carried out at the planning stages of the project in parallel with the development of the project schedule. The estimates are highly dependent on both the estimated task durations and the resources assigned to them. A number of factors which may be political, financial or organizational may dictate the strategy for the acquisition of project resources such as personnel, equipment and materials. Therefore, the cost estimator needs to be aware of any existing policy, guideline or procedures that may affect the resources acquisition strategy. Information gathered from past project can be very useful to provide a guide for the cost estimation strategy.
Engr. Obumeyan is a Chartered Chemical Engineer and is presently engaged as Consultant on the Abuja Light Rail Project.

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