Why is the real budget much higher than planned?
Project costs are generated in several stages. At the first stage, the head, the customer and the cost manager discuss the budget based on the results of similar projects that have been successfully implemented. The manager then discusses the project plan with the manager who is responsible for resources. Here, the budget is calculated based on the equipment and materials available. Then the cost manager keeps track of where and how the funds are being spent, starting from the concluded contracts. This creates a plan for the movement of money.
A detailed calculation of costs is carried out as follows: the manager analyzes each task specified in the project plan, and then calculates the resources that are required to complete it. Then the costs are summed up, and as a result, the project budget comes out.
Funding usually occurs as tasks are completed. Usually there are unforeseen expenses at this stage. Then the manager uses reserve finance. For the plan to be carried out successfully, you need to: a) select high-quality equipment; b) prevent the emergence of resource conflicts. Such problems “eat up” the time that needs to be spent on project implementation.
In some cases, the manager cuts the budget at the expense of low priority tasks.
Resource varieties
Resources are costly, labor and material. The former include contractors. The second group includes qualified personnel, the third group includes equipment and raw materials. Payment for the work of contractors is made on the basis of the terms of contracts. Labor costs are calculated based on the hourly rate and the number of hours. In the case of raw materials, the unit price and quantity are taken into account. In this situation, bonuses, overtime payments may be included in the list of unplanned costs.
You will learn more about how to properly allocate your budget in courses from a consulting company!
