Wednesday 9 February 2022

Components of the project budget

Budgeting a project implies two components - income and expenses. To develop an estimate, it is necessary to determine the end user of the manufactured product, plan and attract the necessary finances and resources, determine the amount of equity capital and the need to attract borrowed funds.

Cost estimates should reflect:

  • costs of attraction and purchase of the necessary raw materials and materials,
  • salary costs of production workers and managerial personnel,
  • reserve for possible urgent expenses, etc.
  • In order to most accurately predict all possible income and expenses, for each project it is necessary to develop its own chart of accounts, which will correspond to the specifics of the project activity. Of course, it is possible to use a standard, approved by the order of the Ministry of Finance of the Russian Federation, an accounting chart of accounts, but this may not be enough to correctly manage the cost of the project.

How to Solve Six Common Budget Problems

The difficulties faced by CFOs are arranged in terms of prevalence: from frequent to rare. For each problem in the article – solutions that your colleagues have already tried.

Learn solutions

Since the budgeting of the project consists in determining its cost, a separate budget is drawn up at different stages of budget planning. Let's consider the types of

project budgets in stages:

At the stage of defining the concept, a management group is created to develop and prepare the budget of the project, during the discussion budget expectations are determined: with a very high error (from 40% to 25%), possible receipts of money, as well as their sources, should be determined. In addition, the expected costs for the implementation of the project goals are budgeted.

The preliminary budget is drawn up at the stage of justifying the necessary investment income and maintenance. Here, all the necessary items of expenditure should be justified, possible suppliers and areas of consumption, possible own investments, as well as the amount of investments attracted from outside should be determined. This type of budget is made very approximately, its error can be from 15 to 25%.

Next, you should proceed to the conclusion of contracts for the purchase of raw materials, materials, the involvement of personnel and the registration of labor relations with them, the conclusion of contracts with service farms. At this stage, tenders are completed, negotiations with investors are held, all the necessary documentation is drawn up to start conducting production activities. As a result of these manipulations, an updated budget is formed, since all the main items of expenditure and the amount of investment income are defined and documented. The error of such an updated budget can be approximately 10 - 15%.

At the stage of documentary confirmation of the budget plan, norms for spending various resources, various kinds of restrictions on the expenditure of funds in each direction are introduced. The final budget is subject to documentation and management approval. Despite these measures, there may also be deviations in such a budget that arise due to circumstances beyond the control of management. Usually, the error of such a budget is small - about 3%.

The actual budget of the project is determined at the implementation stage, when the company incurs real costs. They may differ from the planned ones (for example, as a result of force majeure, emergency situations, equipment breakdown, downtime of equipment and personnel, disconnection of water supply and electricity, etc.). Such a budget has no errors, its accuracy is 100%.

That is, the budget plan goes through a number of stages from indicative preliminary data to the actual value, which is determined by the final financial data.

No comments:

Post a Comment