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Within the Project Context, state the meaning of the following:
• Committed costs
• Accrued costs
Committed costs are costs which have to be paid and have been committed to as part of the project. For example, the project may require an onsite location such as a portakabin and it is required that the rent is paid up front or in 12 instalments. Committed costs should be considered as part of the planned budget in order to give a true reflection of the budget available.
Accrued costs are related to work which has been completed, however it has not yet been invoiced for and therefore, not an actual cost. Accrued costs should be recorded as such in the monthly expenditure and considered as part of the planned budget, in order to give a true reflection of the total budget available.
List and describe four reasons why it is important that the PM understands committed costs on the project.
1. So that the PM can include these costs as part of their planned budget
2. Committed costs contribute towards organisational liability regardless of the outcome of the project
3. Keep stakeholders informed of the money spent
4. Helps the PM to manage risk and expenditure contingencies
1. Knowledge of committed costs on the project can enable the Project Manager to include these as part of the planned budget, so there is enough available cash flow within the project which is required for the payment of committed costs. Committed costs must be paid and through incorporating them into the budget, the PM can ensure that project finances are proactively managed throughout the project and it does not run into cash flow difficulties.
2. The Project Manager’s understanding of committed costs is important for keeping the organisation informed so they can assess and monitor their liability. The organisational board may use this information to make financial decisions regarding availability of cash flow for their projects.
3. A Project Manager can fully appreciate the budget of the project and can utilise this information to inform stakeholders where appropriate and or a steering group. Keeping such parties informed of committed costs on the project enables them to understand how finances are been spent on the project. This is important for their understanding and helps to manage expectations. Managing stakeholders financial expectations can be very important where public money is been spent, for example in Councils or Government departments.
4. Understanding of committed costs can help inform the Project Manager’s risk management of the project. Information regarding cash flow and progress to planned budget may inform the PM and enable the prioritisation of risk mitigation / financial decisions on the project.
List and describe five things which a PM may do to manage costs
1. Understand planned budget to provide a baseline for costs
2. Consider accrued costs in line with budget
3. Forecast any planned costs
4. Hold regular cost reviews to enable monitoring
5. Consider efficiencies following reviews such as resource management
1. A project manager would be advised to consider planned budget in line with the project schedule. A resource histogram can be used to highlight the amount of resources which are required, week by week for each task. By adding costs to the resources in the histogram, a representation of planned costs can be made and demonstrated in a cumulative resource curve graph. The graph can be used as a baseline for the planned budget costs to which any variance van be measured or investigated by the project manager.
2. A project manager could consider accrued costs in line with the planned budget, in order to give a more realistic view of the budget. Accrued costs are associated with the work that has been done but not yet invoiced for. Not accounting for these costs may give an inaccurate picture of the planned costs to actual expenditure.
3. A project manager could forecast any future anticipated costs which may have not yet been incorporated into the planned budget. Cost management and budgeting is an iterative process as the project developed. Forecast costs may include unplanned material costs due to the availability of a resource at a particular time.
4. Regular monthly cost reviews will enable an assessment of budgeted to actual expenditure to be made. Regular reporting is important so the project manager can take any preventative measures to ensure that costs are managed within budget in order to deliver the project to time and quality objectives.
5. As part of the regular reviews of costs a project manager may consider efficiencies to reduce over expenditure currently. The project manager will also consider future progress to plan and may have to make resource decisions which may impact time and cost. For example resource levelling (moving staff around/ making changes to resources for the tasks), may make the most of limited staff and deliver the project to the desired time objectives. They could also consider ways to improve efficiency or modify the project scope.
John Bolton Rachel, I have read through these and I think they are absolutely fine. One small thing is you tend to repeat the question, which I understand can...Rachel, I have read through these and I think they are absolutely fine. One small thing is you tend to repeat the question, which I understand can help get you going on an answer but it can waste a bit of time and make it look as if you have written more than you have. You wont get marks for telling them what the question is! I do understand why people do it just don't let it become too lengthy. Show more 1 year ago
John Bolton Also committed costs help manage costs. I wonder whether you didn't mention these in the second answer because you had done them in the first...Also committed costs help manage costs. I wonder whether you didn't mention these in the second answer because you had done them in the first. Remember that the question are all free standing. You wont get both of these questions on the same paper. Committed costs would be a valid component of the second answer too. Show more 1 year ago
John Bolton The second answer looked a little repetitive, also, especially points 4 and 5. Use committed costs as a heading to avoid talking too much about...The second answer looked a little repetitive, also, especially points 4 and 5. Use committed costs as a heading to avoid talking too much about reviews. Show more 1 year ago
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