PROJECT

01
BUDGETING
 INTRODUCTION
• A budget must be developed in order to obtain the needed resources
• A budget is a plan for allocating organizational resources to the
project activities
• A budget ties the project to the organization's aims and objectives
through organizational policy
• A budget acts as a total for upper management to monitor and guide
the project
 03

Methods of Budgeting
• Budgeting is forecasting what resources the project will require,
what quantities of each will be needed, when they will be
needed and how much they will cost
• Most business employ experienced estimators who can
forecast resource usage very well
• Budgeting a project is more difficult than budgeting more
routine activities
04
Importance of
Project Budget
The project budget helps the
project manager to assess
how much the project is
expected to cost. Throughout
the project, it helps the project
manager to verify whether or
not the project is in line with
the budget.
Project Budgeting 05
Presentation

Top down
Budgeting
• Based on collective
judgement and experiences
of top and middle managers
• Overall project cost
estimated by estimating the
costs of manager tasks
 Advantage &
Disadvantage
ADVANTAGE 1 ADVANTAGE 2 DISADVANTAGE 1

Allows budget to be
Accuracy of estimating Errors in funding small
controlled by people who
overall budget tasks need not be
play little role in
individually identified
designing and doing the
work required by the
project
 07

Work Breakdown structures

identifies elemental tasks

Bottom Up
Budgeting
Those responsible for
executing these tasks
estimate resource
requirements
 Advantage &
Disadvantage

DISADVANTAGE
ADVANTAGE
Risk of overlooking
More accurate in the
tasks
detailed tasks
 FIXED & VARIABLE COSTS
10
Fixed cost is a cost that does not depend on
the quantity of products produced.

Types of Variable cost - This is a cost that has a

dependent relationship with the goods being

Costs made.

FIXED & VARIABLE COSTS DIRECT & INDIRECT COSTS

& A direct cost is an expense directly related to

DIRECT & INDIRECT COSTS
an organization's goods or services.

An indirect cost cannot be directly tied to a

particular good or service.
 Cost Estimates in a Project
Budget
There are different cost estimation techniques and different reasons for
using any of the following methods. When determining which to use,
choose the approach that offers the most reliable cost estimate based
on the information you have at the time. Often, define and account for
the types of costs during your forecast as circumstances change.
 12

HISTORICAL ESTIMATING
Also known as analogous estimation,
historical estimation takes the known costs
from a similar project that has been carried
out in the past and changes them
appropriately (i.e. inflation) to produce an
estimate for the current project.
 13

PAREMETIC ESTIMATING

This approach uses the relationship between

cost and variable rate in order to extract the
estimate from simple calculations.
 14

BOTTOM UP ESTIMATING

The bottom-up calculation is simply taking the

lowest level of work identified at the time
(activity or work package), creating cost
estimates for each and adding up costs to the
highest level in order to get an overall project
cost estimate.
 1ST
15 knowing where to start can be a
challenge for larger ventures

2ND

Wrapping it if your scope isn't well

established, you'll be fighting an

up uphill battle.

3RD
stakeholders would consider the
original budget to be correct. But
Developing a budget for a
when you think of major ventures,
project can be overwhelming
that's a bit unfair.
QUIZ
________1. A plan for allocating organizational
resources to the project activities

________2. It is the overall project cost estimated by

estimating the costs of manager tasks.

________3. It uses work breakdown Structures to

identify elemental tasks
________4. It is a cost that does not depend on the
quantity of products produced

QUIZ
________5. This is a cost that has a dependent
relationship with goods being made

________6. An expense directly related to an

organization's goods or services
 _______7. Cannot be directly tied to a
particular good or service.

QUIZ
_______8. It uses the relationship between
cost and variable rate in order to extract the
estimate from simple calculations.
 ______9. It is the lowest level of work
identified at the time

QUIZ
_______10. It takes the known costs
from a similar project that has been
carried out in the past and changes
them appropriately
11-15
WHAT IS THE IMPORTANCE
OF PROJECT BUDGETING?
 THANK YOU

Project Budgeting Presentation

 ANSWER KEY
1. BUDGET
2. TOP DOWN BUDGET
3. BOTTOM UP BUDGET
4. FIXED COST
5. VARIABLE COST
6. DIRECT COST
7. INDIRECT COST
8. PARAMETIC ESTIMATING
9. BOTTOM UP ESTIMATING
10.HISTORICAL ESTIMATING