Thursday 10 February 2022

Systematic procedure for budget & estimates for the project

In project management, finance is an object of increased importance, since it is their availability that acts as 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 management function, at the same time, they make an estimate of the project and form a budget, as well as predict the 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 that are allocated for each type of activity, either for certain amounts of work, while the budget reflects the costs for certain time periods, together with information on the costs of each type of activity, or for the cost centers, so the project budget is a plan for the enrollment and implementation of finances within the functioning of a certain part of the project, or a whole project.

Despite the fact that there are certain differences in the presented concepts, the estimate, as well as the budget, act as the main tools that ensure the process of continuous project management, which, in turn, acts as a basis in the project control system.

Project cost estimates as a way to improve project efficiency

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

In the event that there is an underestimation of costs in the first phases of the project, the companies that own the projects can incur 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 size of the estimated value is too low, this raises doubts among counterparties about the advisability of concluding the submitted contracts, since the level of profit will be too low for him.


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The low value of contracts may reflect the lack of consideration of certain characteristics, together with the lack of their consideration in the situation of price supply, or indicate the presence of errors made in the situation of preparation of estimates.

If the project team overestimates the level of costs of implementing projects at the initial stages, the consequences of this can be very catastrophic: in the most favorable scenario, thanks to the inflated indicators of the estimate, the project price will go beyond the budget, and in the most unfavorable case, there will be a need to abolish the project, together with the fact that the owners will incur huge losses.

Thus, information on the estimation of project costs, together with an assessment 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 finance is available to finance some activities, should it be 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 project life cycles. The patterns presented are necessary in order to be able to track the expected changes, together with alternative ways of performing certain activities.

Without a properly drawn up and calculated estimate, thanks to which the project budget is formed in the future, the definition of effective control over the expenditure of funds is not possible for implementation.

Observation 1

The tendency to minimize the level of costs acts as a leading goal in the process of implementing all stages of the project, however, most of the daily decisions that are made by project managers are reflected in the final costs. This can be formalized in the form of special payments, bonuses "for economy", support for rationalization proposals that will help reduce the level of project costs, as well as the organization of competitive trends among departments in the context of reducing the level of costs, quality circles, seminars and other things.

To reduce the level of costs, as well as to determine them as planned, in some cases, as part of the preparation of the estimate, changes are applied to technical requirements, as well as time to perform the necessary tasks. Often, there is a direct relationship between the cost of the project and the time of its implementation – so, the less time, the higher the level of costs. You can probably find new trade-offs that save resources while increasing the time to complete projects.

Within the framework of the set project goals, various changes can often arise in the technical requirements, which become possible to overcome through certain compromises.

So, for example, in the case when it is possible to save more time on projects than originally planned, there is an opportunity to save money, or, conversely, in other cases, a more rational way of behavior will be the implementation of large financial costs in order to hand over the project in a shorter time. These factors must be taken into account by managers in order to achieve overall and balanced success in the project.

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