Wednesday 27 April 2022

Project Cost Management — Resource and Functional Project Support


The activities of modern corporate structures are characterized by the increasing complexity and heterogeneity of the tasks facing them, which is due to the state of market conditions and the need to search for new reserves to increase efficiency. In addition to managing functional activities, there is a need to manage the solution of certain complex tasks for the implementation of large-scale activities - projects.

In this context, the term "project" is defined as a non-repetitive (performed once) complex activity limited to a certain time interval (a given start and end time) and performed relatively independently of the repetitive activity of the enterprise. Main characteristics of the project:

  • Loneliness - focus on achieving certain goals, certain results;
  • Uniqueness – the project is a response to one request, a unique type of activity; may imply uniqueness (non-repeatability) not only in the characteristics of the project itself, but also in the conditions under which the project is implemented, as well as uniqueness for the entity that implements the project or is a consumer (customer) of the project (or its result)
  • Complexity is the coordinated implementation of numerous, interrelated, complex activities, in the management and implementation of which specialists of various profiles and many divisions of the enterprise (or several enterprises) participate;
  • Definition — the presence of restrictions on the project; most often, the definition of the project is noted in terms of time, place and conditions;
  • Autonomy – independence from other activities in the company: A project is a type of activity that, due to its scale and complexity, usually cannot be implemented through the existing structures of the company. Autonomy allows you to maintain the stability of the project in the process of its implementation, which in turn contributes to its reliability; allows you to quickly make independent decisions, which contributes to improving management efficiency; opens up space for activities related to the external environment of the project, which significantly increases the survival rate of the economic system.

A project is a specific task with certain initial data and required results (goals) that determine the path to its solution. The project includes the idea (problem), the means of its implementation (solving the problem) and the results achieved in the process of implementation.

As a rule, the project involves the investment of funds to achieve the set goals, which is reflected in the term "investment project". An investment project is a way of carrying out investment activities, involving the use of financial, material, intellectual and labor resources to achieve the planned result and achieve certain goals in a timely manner. The financial result of an investment project is usually profit (income), a significant result is new or reconstructed fixed assets or the acquisition and use of financial instruments, intangible assets with subsequent receipt of income.

Resource and functional support of projects

In accordance with the signs of structuring, resource and functional support of the project implies the availability of certain resources necessary for its implementation, and the functions performed in the process of transforming these resources to obtain the result of the project. The logistic approach to substantiating the resource and functional support of the project involves the analysis of the movement of resources in the process of implementing project functions, which requires a resource-functional classification of logistics and tools of its individual components. Project logistics management involves the application of general and specific management functions to resource flows.

Project resource management includes planning, organization, accounting and control, analysis, regulation, coordination, first of all, the processes of providing the project with the necessary resources. The term "resource" in project management is defined quite broadly: everything that is available to the project, including material, technical, human and financial resources, project team, time, information, knowledge and technology. Resource potential, in turn, characterizes the possibility of efficient use of resources.

Project logistics (project logistics management) in the narrow sense is a functional activity related to the provision of material and technical resources of the production processes of the project and is carried out from the emergence (identification) of the need for resources to their use in the corresponding production process of the project.

The logistics approach to project logistics management involves considering it as a function that determines the final result of the project, along with other types of functional activities. In this case, the importance of logistics for the project is determined by the direct economic effect - the impact on the financial result of the project and the indirect effect - the contribution to the creation of value (utility and value). Logistics is one of the functional sources of competitive advantage of the project, so it acquires strategic importance in project management.

The standard project resource management process includes the following tasks: optimal resource planning and logistics management.

Optimal resource planning involves analyzing work packages and resource consumption based on constraints, as well as predicting their allocation based on resource requirements plans. There are two main methods of project resource planning:

1) Time-limited resource planning – focuses on a fixed project completion date and allows additional resources to be obtained during the overload;
2) Resource-constrained scheduling — assumes that the original fixed amount of available resources cannot be changed and is the main limit for the project.

Logistics management includes the management of procurement and supply of resources, including demand planning, selection of suppliers, conclusion of contracts, delivery, acceptance and storage of goods; resource inventory management, allocation of resources by projects.

Providing material and technical support to the project through the following activities.

  • Preparation of specifications and specifications describing the quantitative and consumer characteristics of the required resources;
  • Planning and organization of the procurement process;
  • Research of the resource market and negotiations with potential suppliers;
  • Pre-selection of suppliers;
  • Selection of suppliers;
  • Placing orders;
  • supply control;
  • mutual settlements.

Financial support of the project

Financial support of the project (project financing) is the provision of the project with investment resources. It includes not only cash, but also other investment resources expressed in cash equivalent, including reserves, property rights and intangible assets, loans, loans and mortgages, land use rights, etc.

Financing of the project will be carried out in the following stages

  • Preliminary feasibility study of the project (determination of the validity of the project in terms of costs and projected profits);
  • Development of a project implementation plan (risk assessment, provision of resources, etc.).
  • Organization of financing (assessment of possible forms of financing and the choice of a specific form, search for financing organizations, identification of sources of financing).
  • Control over the implementation of the plan and the terms of financing.
  • To attract investments in logistics investment projects, the following financing methods are used:
  • Deficit - state borrowing under the guarantee of the state with the formation of public debt and the subsequent distribution of investments between projects and investment entities; state guarantees and debt repayment;
  • joint-stock company or enterprise - a specific activity of the enterprise is invested through participation in the authorized capital of the enterprise or financing of the enterprise, consisting in the acquisition of securities

Project financing, when direct investments are made in the project. Project financing is the financing of investment projects, where the project itself is a way of servicing the debt.

In the area of project finance, the lender bears increased risks by providing an unsecured or not fully secured loan in the form of a traditional bank loan. Repayment of this loan is carried out at the expense of cash flows generated during the operation of the investment activity object.

There are three main forms of project financing: with a full appeal to the borrower, without contacting the borrower, with limited appeal to the borrower.

Unlike traditional loans, project financing allows:

  • Assess the solvency and reliability of the borrower;
  • Consider the entire investment project in terms of feasibility, efficiency, feasibility, safety and risks;
  • predict the results of the project.
  • The spread of project financing in Russian management practice is facilitated by the fact that more and more investment requests correspond to or even exceed the size of the applicants' assets. In this case, securing a loan becomes impossible, which in turn leads to the need to apply the principles of project financing in the activities of investment companies and banks, as well as the creation of departments and offices for project financing.
  • Information support of the project (management of information and communication technologies) includes the management of information resources of the project: the processes of providing and exchanging information between all project participants.

The market of modern project management software is represented by a wide range of products that differ in purpose and level of capabilities inherent in them. Despite the uniqueness of each project, there are some common requirements for project management software. Project management software should:

  • Provide automated plotting of any complexity;
  • Automatically assign actions on the critical path;
  • Provide for the presentation of the project schedule in both graphical and tabular form;
  • provide control and accounting of cash flows;
  • enable the development and storage of alternative project plans;
  • allow you to allocate resources of various types to project tasks and control the degree of their use;

Project Planning

Project planning is the formulation of goals and the definition of ways to achieve them on the basis of the formation of a set of activities that will be carried out in the implementation of project functions, the use of methods and means for the implementation of these activities, the coordination of the necessary resources, the coordination of the actions of project participants. Planning is one of the key management functions, as the organization, accounting, control, analysis and regulation of the project are carried out in accordance with the plan; in addition, planning processes can be repeated and are part of an iterative process that takes place until a certain outcome is achieved and the project is completed.

Basic planning processes include:

  • Planning and documenting the content of the project;
  • Key planning processes include: planning and documenting project content; definition of the content of the project, identification of the main stages of project implementation and their breakdown into smaller and more manageable elements;
  • Estimation of costs, estimation of resources required for the implementation of project activities;
  • Identification of activities, formation of a list of specific activities that will ensure the achievement of project objectives;
  • Sequence of activities, definition and documentation of technological dependencies and boundaries of activity.
  • Estimate the duration of activities, work and other resources required to complete each activity;
  • Calculation of schedules, analysis of technological dependencies of work, duration of work and resource requirements;
  • Resource planning, determining which resources are needed in what quantities to complete the design work; and determining the time frame within which the work can be completed, given resource constraints.
  • Budgeting, linking estimated costs to specific activities;
  • preparation of a project plan, collection of the results of other planning processes and their integration into a common document.

A systematic approach to the formation of the project structure involves the consideration of planning a logistics project in the space "functions - resources - management", which allows, on the one hand, to optimize planning processes, and on the other - to add new processes to this structure as necessary.
Each level of management in the company should have a strategy for achieving the goals of this level. Obviously, a logistics project should be considered as a means of implementing a logistics strategy. In this case, the logistics strategy is elevated to the rank of the basic strategy for companies participating in the logistics chain, whose activities in the field of logistics are the most important - logistics companies. For companies operating in other areas of activity, it is functional (supportive), and in this case, the choice of a logistics project is a consequence of the coordination of basic and logistics strategies, as well as the logistics strategy with other functional strategies. The project is part of the strategy by which the company achieves its development goal.

Management of the cost and timing of the logistics project

According to the general concept of project management, the goal of the project should be aimed at achieving the economic efficiency of design solutions, taking into account the specifics of the object. This means that during the implementation of the project, the facility must be equipped with such quality characteristics that ensure minimal operating costs throughout its service life. This goal is also relevant for logistics projects, depending on how the object is defined. Logistics projects aimed at creating/transforming logistics systems should focus on the cost efficiency and strategic time of the systems. From this point of view, in addition to quality assessment, cost and time parameters that evaluate the functions and resources of the project are important. In this case, cost and time management is seen as a special project management function that relates to the relevant logistics rules.

Project cost is defined as the sum of the cost of project resources, costs, and project time. Project cost management includes the processes necessary to ensure and ensure that the project is implemented within the approved budget.

Project cost (expense) management includes the following processes:

  • Calculation of the project cost;
  • Preparation of the project budget, i.e. setting targets for the costs of the project.
  • Control of costs (expenses) for the project, constant assessment of actual costs, comparison with those previously planned in the budget and development of corrective and preventive measures.
  • The main document through which project costs are managed is the budget, which is a register of planned costs and revenues with their distribution by items for the corresponding period. A budget defines the resource constraints of a project, so cost management focuses on a cost component, commonly referred to as a project estimate. A project cost calculation is a document that provides justification and cost calculation for a project based on the scope of the project, the resources required, and the prices.

In this case, the cost management processes have different content, but the composition of the general management functions at different stages of the project:

  • The concept of the project is an assessment of the total cost;
  • Project development – detailed cost estimation and budgeting.
  • Project Execution - Budgeting and Cost Control
  • Project Closure – The final evaluation of the project.
  • In practice, project costs are not evenly distributed across the stages of the life cycle: Most of the costs are incurred during the implementation of the project, while the project idea that determines the cost of the project is developed in the initial stages.

summary estimate of the cost of the project. In order to estimate the cost of the project, it is necessary to determine the cost of resources necessary for the implementation of the project, the cost of work and the timing of their implementation. In this case, the project resource tasks and work confirmations are performed as part of project planning.

The basis is aggregated (preliminary) estimates:

  • Control – control of project costs;
  • Feasibility Study – Project feasibility is assessed against costs and expected results;
  • Fund-raising — funding decisions are made on the basis of a comparison of estimated expenditures and future income;
  • Resource allocation - Cost constraints are imposed on the extent to which resources can be purchased for individual activities;
  • Estimated duration – The duration of work is calculated by comparing the amount of work with the available resources;

Preparation of quotations. On the Management Coursework page you will find many ready-made topics for coursework on the subject "Management".

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