Monday 19 April 2021

Simplify the budget and estimates for the project


Features of budget and project estimates

In the management of projects, the object of increased importance are finance, because their presence is a necessary condition for the successful implementation of projects. 

It should be noted that successful and experienced managers often become a kind of accountants who have a managerial function, at the same time, they make an estimate of the project and form a budget, as well as predict development and implement cost control in their projects. 

The totality of all the presented patterns is called financial management.

The main difference between the budget and the estimate is that the project estimate shows the total amounts allocated for each activity or for certain amounts of work, while the budget reflects the costs for certain time periods, together with information on the costs of each activity, or on the cost centers, so the project budget is a plan of enrollment and implementation of finances within the operation of a certain part of the project. or the whole project.

Although there are some differences in the concepts presented, estimates, as well as budgets, act as the main tools that ensure the continuous project management process, which in turn serves as the basis for project control.

Project cost estimates as a way to improve project efficiency

Project cost estimates are important for both customers and suppliers (counter parties). With the help of accurate and correct estimates for certain types of work, accurate decisions are implemented in the context of project development, or a decision is made to complete it.

If the costs of the first phases of the project are underestimated, the project owners may suffer significant losses and even become bankrupt. 

At the same time, the company's activities largely depend on the price provisions for the conclusion of contracts from the position of customers. If the estimated value is too low, it raises doubts among contractors about the feasibility of the contracts submitted, as the profit level would be too low for them.

The low cost of contracts may reflect a lack of consideration of certain characteristics, coupled with a lack of accounting for in the supply situation, or as a result of errors made in the cost-making situation.

If the project team overestimates the level of project costs in the initial stages, the consequences of this can be very catastrophic: in the most favorable situation, thanks to the inflated estimates, the price of the project will go beyond the budget, and at the worst - there will be a need to abolish the project, together with the fact that the owners will suffer huge losses.

Thus, information on the assessment of project costs, together with the estimate of the expected level of profit should be accurately reflected in the estimate, as far as it is possible to implement in practice.

 However, project estimates should ensure that additional funding for certain activities is available if necessary.

The formation of an accurate estimate acts as a significant stage not only in the initial stages of project preparation, but also in all life cycles of projects. 

The patterns presented are necessary to ensure that the proposed changes can be tracked, in conjunction with alternative ways of doing certain activities.

Without a well-drawn and calculated estimate, which will lead to the formation of a project budget in the future, the definition of effective control over the expenditure of funds is not possible for implementation.

Note 1

The trend towards minimizing costs is a leading goal in the implementation of all phases of the project, however, most of the day-to-day decisions that project managers make are reflected in the final costs. 

This can be done in the form of special payments, cost-effectiveness bonuses, support for rationalization proposals that will reduce project costs, and the organization of competitive trends among departments in the context of cost reduction, quality circles, seminars, and so on.

In order to reduce costs and to identify them as planned, in some cases, the estimates apply changes to technical requirements as well as the time it takes to complete the necessary tasks.

 Often, there is a direct link between the cost of a project and the time it takes to complete it - so the less time it takes, the higher the cost. 


It is probably possible to find new trade-offs that allow for resource savings while increasing the time it takes to complete projects.

Within the project objectives, technical requirements can often result in various changes that can be overcome through certain compromises.

For example, where there is a possibility of saving more time on projects than originally planned, it is possible to save money, or, on the contrary, perhaps in other cases, a more rational way of behavior would be to implement a higher financial cost in order to pass the project in a shorter time frame. 

These factors must be taken into account by managers in order to achieve overall and balanced success in the project.

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