This seems like an easy question but it needs to cover budgeting, commitment, accruals, forecasting and corrective actions. Write five paragraphs on each of these topics.
Describe The Stages Involved In Project Cost Management
25th January 2013
Paul Naybour
LinkedIn ProfilePaul Naybour is a seasoned project management consultant with over 15 years of experience in the industry. As the co-founder and managing director of Parallel, Paul has been instrumental in shaping the company's vision and delivering exceptional project management training and consultancy services. With a robust background in power generation and extensive senior-level experience, Paul specializes in the development and implementation of change programs, risk management, earned value management, and bespoke project management training.
Paul U. A really good answer, very clear what is going on at each step and really good examples of what a PM and the team would be doing at each stage. May be a bit more than you need for the marks, but its only an issue if it takes beyond the 15 minutes.
Thanks Paul, I could obviously precis this down but I find once I start typing it is difficult to stop, on the other hand, at least it is legible which I’m afraid my handwriting is not!
Cheers, PU
Paul, I noticed this question so had a go, I’ve made it quite prompt as I’m still having time issues with the 15 minute cap. Please let me know if this is ok. Thanks.
-Project budgeting is the last stage found within the planning process and must instigate cost management awareness. The budget will have been comprised from the sum of works identified within the precedence diagram, resource and planned overheads calculated accordingly to the project. The some of this work is quantified and measured to create a baseline figure for which the PM can use throughout the project. Techniques used in cost management to control and manage finances include…………
-Forecasting- this is used to help calculate the amount of money spent on a project (actual costs) to understand what expenditure remains on the project (remaining cost). Having a live profiled document supports a pro-active approach to managing costs within the project, a function which aids transparency to costs on a project and prompts any corrective actions required. This can be used as a tool to present costs to senior management/ sponsor showing planned, actual and remaining costs on the project.
-Accruals, these are used within a project for credits and debits to the budget. Using this method helps the project set aside monies for certain endeavours within a certain time period or funding period without it affecting the budget. For example work may have been done on the ground by a contractor and they may not as of yet invoiced the PM for works done to date accruing this amount stabilizes the budget moving forward so money is not being spent elsewhere to help ‘’balance the books’’.
-Commitments are used to commit a sum of money to the projects budget which is accounted for and ring fenced. For example the PM may commit £50,000 to a construction contract and pay by instalments. Ultimately the outlay of money is committed to that contract and will be paid over time. This can’t otherwise be spent on anything else within the project as a commitment has been made.
-Cash flowing is to understand where the funding of monies comes from and how this interacts with cash income and cash expenditure on the project. For example making a payment to a contractor, if you paid them up front you would be in negative deficit which is not favourable to the projects cash flow which needs consideration and attention. However creating payment terms and contracts to support this function would be to have them either paid when paid or paid for works complete depending cash flow mechanics. All relative to a more sustainable flow of money within the project environment.
Great, think ive answered the question wrong now?
Steve you will be pleased to know that this is the right answer to the right question. Again it’s very clear and well set out, well done, and best of luck with the exam.