What is the scope of a budget?
1.6 Project Management 101: Purpose, Scope, Schedule, and BudgetFor any project, there must first be a shared understanding of the project’s purpose, scope, schedule, and budget. This needs to be clear and succinct and you will use it to explain the project over and over again from beginning to end. It may take the form of a single page project summary – a “one-sheet” – or it could be expanded to become the first few slides of every slide presentation you will do for the duration of the project. It pays to get this narrative right – or at least very close – early on and then to tweak and improve it constantly along the way to reflect new information, changing conditions, and ongoing feedback from all of the stakeholders. Still, at the end, those first few slides should not be very different from those you showed at the very beginning of the project. Show
PurposeWhat are you trying to accomplish with the project? This is basically a “mission statement,” in the form of a short paragraph or a handful of bullets, perhaps based on a one or two-page list of principles, but not much more. The goal is to arrive at a short version that, with repetition, becomes a brief elevator speech that everyone on the team can remember at any time when someone says, “what is the project about, anyway, and why are you doing it?” ScopeWhat is the nature of the project? How big is the site? What work is actually involved? What will it be when it is finished? Are you building an all-new facility or renovating an existing one? Is it a new project, a renovation, an adaptive reuse, a historic preservation project, or a greening project? What is the character of the project? Can you describe it in a few sentences? ScheduleHow long will it take to complete? How long will it take to engage the stakeholders, complete design, obtain approvals, raise funds, bid, contract and construct, and when will it be open to the public for use? BudgetHow much will it cost and who will pay for it? How much will it cost to design, build, and furnish – the capital costs – and what is the anticipated operating budget once construction has been completed and it is open for public use? What are the potential risks and costs associated with owner and contractor driven “change orders,” unforeseen conditions, and other “known unknowns” and “unknown unknowns?” How much of a cash surplus or “contingency” should you carry on top of the budget to cover unanticipated costs?
How much will that project cost? That is probably one of the most difficult (and intimidating) questions faced by project managers. And, as luck would have it, it's also a must-answer question. Read on to find four (4) easy steps to simplify and standardize budget estimating. As a start, in order to establish a realistic budget, your project must be properly defined*. Within the project environment, everything has a price. Products, materials and supplies have to be purchased, and resources have to be allocated, all at specific unit cost, and over a defined period of time. It is the cost of these items, in combination, that comprise the project budget. When preparing a budget, every projected cost factor should be backed up by some tangible source, whether it is an actual quote, proposal, past project experience, research or some quantifiable costing methodology. The ultimate goal is to create a verifiable cost projection that can withstand serious questioning and scrutiny (which is likely to occur if the budget is large). Also See: Setting IT Budget Priorities Get to Budgeting in 4 Easy StagesRealistic project budgets can be achieved in four (4) steps designed to ensure that your budgets are sufficiently defined and aligned to existing project needs and capabilities. Stage 1: Set a justifiable basis for your budget projection by answering the following questions....
Stage 2: Identify assumptions and constraints.Project budgets are based on more than actual numbers. Behind every cost projection lie three factors – assumptions, constraints and risks. Assumptions are the beliefs assumed to be true for the purposes of planning. Constraints are the conditions, circumstances or events that limit “the possibilities" and are known from the outset (i.e. lack of staff). Risks are possible and probable conditions, circumstances or events that could threaten the success of a given project. In order to prepare a realistic budget, these three factors have to be identified and defined in so far as they pertain to budgetary matters. This analysis will reveal the “wiggle room” in the budget estimate to determine the likelihood that the estimate will be realized, as well as the degree to which the estimate may be subject to change. (Also Read: Understanding Project Assumptions and Constraints) Learn to Fast Track When it comes to managing, you need more than one approach to be consistently successful. The way you manage when surrounding conditions are good, is not the way you manage when time is running short, resources are stretched thin and people aren't working together. That's what fast tracking is for - and we can teach you how it's done. Learn More Stage 3: Skip the pad and plan for measureable contingencies.Budgets are often “padded” to account for the unknown, taking verifiable cost estimates and then adding a “fudge factor” percentage, usually 10 to 20%. This can work for smaller, less complex projects, but in large, complex projects, fudge factors can be difficult to manage and justify. In order to establish a credible budget, separate budgets can be created to account for contingencies. Depending on project needs, in addition to the primary working budget, additional budgets can be created to fund contingencies (the contingency budget), as well as requested changes (the change control budget). In this way, the project manager can manage the working budget as a distinct entity, and draw from the contingency budget for unplanned expenditures, and the change budget to pay for requested and approved changes. This will maintain the integrity of the working budget, and provide an accurate record for future projects. Stage 4: Establish actionable tracking procedures.Once a budget is approved, expenditures must be monitored, and for that, budgets must be tied to a schedule (how much will be spent and when?). In this way, expenditures can be tracked for expected utilization… i.e. at any given point in time have we spent more than expected, less than expected, or pretty much as expected? Variances can then be examined to determine whether they can be absorbed or whether corrective action must be taken. Based on the needs of the project, budget status reporting should be a regularly scheduled project deliverable. Budget reporting should account for actual utilization compared to projected utilization, along with an explanation for any variances (and action plan as well). (Also Read: The Art of Project Status Reporting) Closing Tip: Finding the Budget "Sweet Spot"No one wants to be over budget, and while “under budget” may seem attractive, if projects are continually under budget, at some point, individual budgeting skills will be called into question. And once skills are in question, so is credibility. So the trick is to find the sweet spot – a realistic budget with appropriate contingency funding to allow for the unexpected. CHECK OUT THE FAST TRACK PROJECT TOOLKIT.If you're looking for a fast, easy way to achieve project planning success, you'll find it inside the Fast Track Project Toolkit. This unique, informative online course gives you everything you need to become a project leader and fast tracking expert. Here's what you'll learn:
What is scope of budgeting and forecasting?Budgeting quantifies the expected revenues that a business wants to achieve for a future period. In contrast, financial forecasting estimates the amount of revenue or income achieved in a future period.
What is the scope of the project?Project scope is the part of project planning that involves determining and documenting a list of specific project goals, deliverables, tasks, costs and deadlines. The documentation of a project's scope is called a scope statement or terms of reference.
What financial scope means?The term "scope" is used in the financial modelling process to describe the amount of business activity that a particular model is designed to analyse. The scope of a model is determined by the amount of detail it contains and the types of financial data it uses.
What are the 5 steps of defining scope?Here are the 5 most important steps to define the scope of a project in your business:. Identify project needs.. Figure out project goals.. Consider project limitations.. Define resources and budget.. Write a killing project scope statement.. |
