Budget

[Jamie]

Sounds like a simple question but I haven't been able to find the answer.
Is there a way to set your budget for indivdual tasks? This is a custom
dollar amount that can be compared to the projected cost that project
calculates.

 

[Steve House]

You could grab one of the user-defined cost or number fields to use to
record the allowable value. FYI, the term "budget" in project management is
not the top-down amount senior management mandates as the maximum you are
allowed to spend. The operating budget for a task or the entire project is
the projected cost, estimated from the bottom up, based on the projected
work and the cost of the resources and materials. The Cost that project
calculates is the basis of the budget. If at all possible, the way to
approach the problem is to prepare the project plan with projected costs to
senior management for their approval BEFORE they give you a top-down amount
because such top-down budgets are often based on what they think (or hope)
the project *should* cost rather than concrete data on what it probably
*will* cost.

 

[Jan De Messemaeker]

Hi All,

PMI is not always consistent in its use of the different erms, but there is
a clear tendency to make a differnce between "estimate" (which is the bottom
up figure) and "budget" which is an allowed amount.

Each and every customer I ever worked for used "budget" in the sense of the
allowed top down amount.
Governments make a budget then controm their spendings versus that budget
Budget accounting is cost accounting plus comparison to an oallowed amount.

And let me quote from PMI,7.3:

"Reality may dictate that estimates are done after budgetary approval is
provided, but estimates should be done prior to budget request whenever
possible"

This clearly mark teh differnce between the two.

HTH

 

[Steve House]

According to a number of sources, a bottom-up estimate becomes a budget when
it has been submitted and approved by senior management. At least, that's
in the optimal situation. Since the estimate is prepared (hopefully) by the
PM using Project, the approved budget and the estimated cost figures
developed in Project would be the same. Of course, the real world doesn't
always conform to a preferred methodology and senior management might make
pie-in-the-sky budgets that essentially are the product of wishful thinking
rather than an objective analysis of what will be required to accomplish the
project's objectives.

There are a couple of way a top down-budget that might occur without a
detailed bottom-up estimate forming their basis. A legit use is when the
budget is based on a prediction of the future revenues and operating
expenses and serves to apportion available funds between projects. Such a
preliminary budget should *not* used to apportion funds and control the
costs within a single project. The appropriate use of that top-down budget
is to be compared to the bottom-up estimate so that it can form part of the
criteria for a go/no-go decision whether the firm should commit to the
project or kill at the end of the initiation phase. Once top-down budget is
compared to the bottom-up estimate and it is confirmed that the funds
necessary to complete the project will be available, it should be replaced
with a final operating budget based on the actual cost estimates plus
management and contingency reserves.

A not so legitimate use of a top-down budget is when it has been established
by executive fiat without first developing a cost model that insures it is
actually possible to get the project done within the allowed budgetary
amount. The boss says "You have $1 million to get it done. Adjust the
project budget accordingly!" Having such an arbitary budget imposed from on
high dramatically increases the risk both to the successful completion of
the project and the project manager's continued employment <grin>.

 

[Jamie]

Basically, here's what I want to do.
Have a "budget" that enables me to put a certain amount in for each task.
This amount should be calculated in both the task's summary task and the
Project total. Then, I could see a variance between this "budget" field and
the projected cost for the project.

Honestly, I am a software instructor who is learning Project for teaching
purposes. This is a question I have had from a number of clients, and it
seems like a common issue. I agree with your ideas on project cost, but I
don't have any control over this. I am sure you understand.

 

[Steve House]

I do understand. Still, the bottom line is that the work required in a
given task is not driven by the funds available to do it but the amount of
work required to complete the deliverable. The project requires me to build
a walkway that is 100 metres long. It will cost $100 per hour for a crew to
lay the concrete and they can lay 10 feet per hour working at maximum speed.
It's going to require 10 hours to lay that walkway and cost $1000. The
physics of walkway construction is what determines that it will take 10
hours and there is no way it can be done in less. It is absolutely and
totally impossible to lay pavement at a faster rate without increasing the
size of the crew (which increases the cost) or compromising on the quality
of the result. The boss has given us a top-down budget of $500 because he
thinks that's what the firm can afford. So what do we do? Stop when we've
laid 50 metres and spent the $500? Accept a lower quality of the work? Go
to the boss and tell him he's p*****g into the wind?

It is indeed a common issue and one of the reasons that in some industries
such as IT, something on the order of 60% or more of projects are failures
in that they are either abandoned before completion, finish late, or go over
budget. The real problem is political, not software. You can use one of
the user-definable fields to record the apportioned budget for the tasks
versus the computed cost and another to record the difference between the
two but that doesn't give you any useful information to solve the problem of
managing the project, it simply lets you quantify the reasons the project
failed when the boss's boss calls you on the carpet demanding an
explanation. <wry grin>
--
Steve House [MVP]
MS Project Trainer/Consultant
Visit http://www.mvps.org/project/faqs.htm for the FAQs