Tuesday 8 February 2022

Project Budget : Types | Purpose | Stages



Project budgeting should be understood as determining the cost of those works that are implemented within a certain scheme. In addition, we are talking about the process of forming a budget on this basis, which contains the established distribution of expenses by cost items, types of work, by time of their implementation or other items.

Formation of the budget structure

How is the preliminary budget of the project drawn up? The structure of such is revealed through the chart of accounts for the cost of a particular program. As a rule, in order to determine it, it is enough to have a traditional accounting estimate.

Budgeting is considered a cost plan or a cost bookmark. This means that after preliminary planning, you need to understand how much, when and for what exactly the money will be paid. Therefore, in this case, it is possible to use any methods of presenting losses. However, it should be remembered that they must meet the practical requirements of stakeholders interested in them, as well as the established standards. In addition, they must answer those questions that interest the investors of the project.

Budget submission forms

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строительные тендеры
Both the planned and the actual budget has certain forms of presentation. So, among them, it is important to note the following:

  • calendar schedules, which are peculiar cost plans;
  • loss distribution matrices;
  • cost bar charts
  • similar graphs of cumulative totals (cumulative) losses;
  • line diagrams of cumulative costs distributed over time;
  • display of the structure of losses of circular type.
  • It is worth noting that at different stages of the project development, different design of project and working documentation is relevant. The fact is that we are talking about the development of different types of budgets. Among themselves, they differ in both the required accuracy and purpose. It is worth noting that the allowable budget error becomes much smaller as the project develops.

Types and purpose of budgets
The error reduction can be argued by the data in the table below. So, let's look at the purpose and the main types of budgets.

Stages of the project    Financing    Destination    Accuracy, %
Project concept. The main idea in an expanded form

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Project budget and cost estimates


It is interesting to note that the project budget is similar to the current cost estimate of one business element of a company. The main difference here is that it traditionally covers it completely, that is, from beginning to completion. In turn, the budget of the business unit is formed annually or quarterly. For the most effective control, it should be divided into two components: direct costs and indirect losses.

The first type of budget is a key means of management and control for project managers, as well as directors of functional units who take part in it. This includes the costs (transportation costs, salaries, and so on) of everyone who is included in the program team. In this case, each of the subjects performs separate tasks.

It is worth remembering that when justifying cost items, the following points are taken into account:

  • the cost of materials to be purchased;
  • the amount spent on production;
  • the cost of deviations from the normal use of technology;
  • the amount spent on putting the product into operation;
  • the cost of deliveries;
  • other costs.

In turn, direct costs should be presented as follows:

  • in a broken form - exactly according to the structure of the project to the level of executable tasks;
  • include weekly costs for staff salaries, materials (contracted or purchased) and more for each component and task of the intermediate project;
  • include overhead costs directly related to the payment of materials and labor;
  • summarize in accordance with the various tasks performed by the participating structures;
  • provide management reserves (in other words, leave a certain reserve of cost and time just in case).


The Importance of the Budget Process


Budgeting a project puts significant pressure on both its managers and departments. The fact is that it puts forward such an alternative: if we fit into the budget, then we act effectively, if we exceed it, the work is performed poorly.

However, this requirement is often not applicable to the actual budgeting of the project. The fact is that budgets are both formed and implemented under certain pressure from a number of factors, both subjective and objective.

For example, a project manager who has been hired is often forced to accept budgets developed and adopted without his participation, even if they seem unrealistic to him. Otherwise, the staff member may be denied a contract. However, if he agrees to a budget that clearly does not meet the deadlines and the resources available, as soon as the achievement of certain results requires expenditures above the planned funds, the employee is forced to explain the problem, despite the fact that the budget was initially set at an extremely low level.

It is worth remembering that budgeting a project can be rational. In this case, the purpose of the budget is primarily to establish the true cost of the project for the firm. Therefore, if the project manager accepts a budget that significantly exceeds the 15-20% error acceptable for the cost justification stage (information from the table above), it is very likely that the situation will not be limited to explaining to senior management the structure of the reasons for this excess. In this case, the project manager is likely to lose his job.

How can I avoid this?


To avoid such a situation, M. Tomsett, an American scientist, suggests that managers form their own project budgets. At the same time, he points out a number of reasons for this behavior:

  • You are responsible for reporting according to the future costs of the project and the ability to spend their budget. This will become impossible if you work with a predetermined budget.
  • As a project manager, you should be better than other employees in knowing exactly how much a particular project costs. The budget you set is considered a monetarily measurable goal. It should satisfy you according to the following parameters: to give the opportunity to measure the success of the project and to be a way to measure the competence of the manager (that is, you).
  • You should make some assumptions in your budget items. This is crucial if future justifications for specific costs are at play. It is worth adding that the assumptions are compared with the possibilities for the current period, while possible complications are not taken into account. Only when you have the opportunity to compare at this level, the budget process will function in accordance with the plan.
  • Preparation, tracking and execution of the financial plan
  • It is necessary to know that project budgets are formed, tracked and executed separately from the financial plan of the units participating in the business, the company as a whole.

There are reasons for this:

Projects do not have the repeat property. The budgets of departments and subdivisions are formed annually. Often they are reviewed every six months or more often. Projects end their existence immediately after their execution. The fact is that the time of implementation of the program is not tied to the fiscal year. Revising the budget is undesirable. The exception is when gross errors are detected in the initial version or with a sharp change in the environment (it is in it that a specific project is implemented).

In the hands of the manager - direct control over the execution of the budget. It is worth noting that the financial plans of departments and subdivisions, as a rule, depend on the relationship that develops between several services: the execution department gives a cost limit to one or another unit, based on information provided by another department; however, decisions about personnel and the system are made by top management. The project, on the contrary, uses the budget in accordance with two directions: the use of those resources that are available (achievements and personnel), they are already at the disposal and budget of the department, and the limited use of external resources, which are attracted temporarily. Hiring an additional staff member results in fixed costs in any case; an additional unit of staff for a project would normally draw on forces already available in the service.

The success of budget execution is directly related to the impeccable observance of the project action plan, as well as the schedule for the use of resources. It also consists of how well the manager has planned the implementation of each phase, as well as whether the employees participating in the project team adhere to the established schedule. If the implementation of a particular stage or work as a whole is delayed due to the need, for example, for human or time resources, which was originally determined, this in one way or another affects the budget in an unfavorable way, that is, in the form of an increase in the cost of the project.

Such rules, at least in the case of an ideal situation, should be used by managers of all services of the company who have their own budget. It is worth knowing that each of them is responsible for the absence of exceeding the budget level and, accordingly, overspending of funds. However, in practice, only a smaller part of firms strictly follows this rule. On the other hand, only a few companies allow department directors to assign a budget level that is really needed for the project being executed in the department.

Tenders, negotiations and agreements


Next, it is advisable to consider the culmination stage of the project: the organization of tenders, special sites, as well as the conclusion of cooperation and partnership agreements.


The tender should be understood as competitive bidding, during which the choice of suppliers of marketable products and services is realized. Municipal and state customers carry out their activities within the framework of 44-FZ "On the contract system in the field of procurement of goods, works, services to meet state and municipal needs".


Special venues

Commercial structures operate within the framework of the current civil legislation in the territory of the Russian Federation. They post information regarding their plans on tender sites. Both an individual and a legal entity that fully complies with the requirements of the customer and Russian legislation have the right to participate in procurement.

There are different tenders: open (that is, for all participants), for example, an open tender, a request for quotations, an electronic auction, a request for proposals; closed (that is, for a limited number of persons), for example, limited auctions and competitions. Purchases can be carried out both in electronic form and in paper form.

It should be borne in mind that such an event requires serious preparation, in particular, legal, financial and technical. This is necessary in order to ensure the application and execution of the contract. Therefore, managers should initially set up their staff for teamwork, because the final result depends on the coherence of the operations carried out by employees.

The main stages of the tender implementation

Schematically, participation in such events can be presented as follows: Market analysis → Selection and further receipt of an electronic signature → Registration of → Search for a tender site → Preparation of collateral in the financial plan → Establishment of a special account (this is necessary for procurement participants in accordance with 44-FZ) → Preparation and subsequent submission of an application for participation in the procurement of → Direct appearance in the tender. The final stage, of course, is to get the result.

Consider the main stage of the presented list: participation, for example, in a construction tender. This will be an electronic auction under 44-FZ. Within a certain period in advance, the customer begins to consider the applications of the participants. When your bid is considered admitted to participate in the auction, you should calculate the minimum price level for which you are ready to supply a construction product or provide appropriate services, organize work within the framework of this tender.

The electronic auction is held in real time. So, within ten minutes after submitting the last bid for the price, the participant has the right to make his own proposal online for the "auction step": from 0.5 to 5% of the NMCC. In other words, a step that can be carried out at a time should not exceed 5% of the original maximum price of the partnership agreement (cooperation) specified in the notice.

In accordance with the results of the auction, a protocol is drawn up. After the auction is considered completed, there is a stage of consideration of additional parts of the bids.



So, we have considered the category of budgeting: the purpose and types of budget, the stages of the project. In addition, we analyzed the main stage in more detail. It is worth noting that even a beginner can win the tender. How can this be put into practice?

Electronic trading involves the presence of customers, that is, money. However, the tender excludes relations of an informal plan. There will be no way to reach an agreement. In case of non-fulfillment of the conditions established in the contract, you can lose the agreement, lose money, as well as miss the opportunity to participate in other tenders due to disqualification. Beginners often violate these rules due to banal inattention.

To begin with, you should fill your hand in tenders that do not contain strict rules. For example, at the auction of a commercial plan. Only after that it is advisable to proceed to serious tenders, which are regulated by procurement legislation in accordance with 44-FZ and 223-FZ. The main condition for victory is nothing more than attentiveness. First of all, you need to think about the quality of work, and not about the amount of the agreement.

Imagine that you still won. You have a contract in your hands. Will the firm be able to find additional capacity and strength to execute it without problems? And if not, how much money will it take to hire workers or rent equipment? Will the contract remain profitable?

It is worth remembering that among the mistakes of tender participants, the key ones are such as violation of deadlines, inattentive study of documentation, attempts to take part in many tenders at a time, malfunctions of the technical plan, bidding at a loss. All this can lead to adverse consequences. That is why it is necessary to prevent all these shortcomings in advance.

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