MGMT210:7:Online Introduction to Project Management
So, remember we said one of the things that could constrain a project speed is budget, how fast you got money coming in can help dictate how fast the project can be completed. Not only for that reason, but also just for the overall amount of commitment people want to know, how much is the project going to cost? So, the budgeting chapter really culminates in creating a budget. And a lot of times, the official way of saying that is the cost baseline. This is what we commit to. So if we’re going to create the budget, there’s several pieces of information that we need to begin with. First of all, from the work breakdown structure, we need to know what are we creating. Then we need to understand, you know, that’s all the deliverables. Then we need to understand the work activities, and we have to know when those work activities are going to be completed. And we get that in the budget, I mean in the schedule. If you remember, with the schedule we’re looking at the estimated time for an activity and the sequence, the order in which they can be done. We create the schedule. What we’re going to do to, in addition to this, is we’re looking at how much is it costing to do each activity. Now there are two different kinds of costs involved. One is a fixed cost. So if you’ve got to buy an item or a piece of equipment to do an activity, you’re probably going to put the cost of that at the beginning of the activity when you have to buy the equipment. But the variable cost, we’re going to pay as we do the work. So for instance, in this one, the first item we have, 3.1.1, takes ten days, and it’s taken $200 a day. So that would be a total of $2,000. And that’s going to be spread out over the ten days in which that project task is completed. So the way we’re going to do this is budgeting in most organizations is done in time buckets. The buckets, you know, the big buckets are years and fiscal quarters. Smaller buckets are months and even weeks. So generally, we’re going to define which month and which week we’re doing certain activities. And so we can put our schedule, our Gantt chart schedule, across that. And we can see exactly when they bid. For simplicity on this example, we’re going to assume we have 20 workdays per month. That’s kind of average, but of course, with holidays and things, sometimes there are 19 or 21 days. And we see when each activity is there. The next thing we’re going to do is beneath it, we’re going to create a table where we’re going to show when, which month, each activity is being paid and how much. And some of those, like the first couple, are both done in September. And so all the work is there. But if you look at the third one, a little bit of that bar is in September, and most of it is in October. And so that particular one has $400 in September and $2,000 in October. So sometimes a particular activity spans more than one-time bucket. So we’ve got all those. The next thing we’re going to do is we’re going to add it up. So for each time bucket, in this case months, remember, we’re adding up. So the first month we expect to spend $10,000. The second month we expect to spend 6,000. So the total at that point is 16. And then another 6,500 to bring the total to $22,500 for the overall project. The budget tells us at least two things that are really critical. One is, how much total money we expect to spend on the project. And the second one is, when do we need the money to pay all the bills that come in. So, this is a time phase project budget.
Assignment 6.1
Listen to the “From the Author” video and identify the steps he mentions to create a time-phased project budget.
Discussion 7.1
Project risks can/cannot be eliminated if the project is carefully planned. Explain.
Discussion 7.2
What are the major differences between managing negative risks versus positive risks (opportunities)?
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