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PMP - Project Management Practitioners Handbook

PMP - Project Management Practitioners Handbook

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Published by: TaciongKalbo on Jul 30, 2011
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11/23/2012

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Nothing gets done without money. Projects are no exception, and Perry is the first to realize this.

There are many reasons for calculating costs before they are incurred. To begin, they give an idea of how
much the goals will cost to achieve. Cost calculations later become a tool for measuring the efficiency of a
project team. They also help determine priorities as the project progresses. Finally, they contribute to the
overall profitability of a company.

As project manager, Perry has several responsibilities for budgeting. He must develop budgets on a
task-by-task basis and for the entire project. He must ensure that expenditures stay within the budget allocated
for each task and the project as a whole. He seeks additional funding, if necessary. Finally, he tracks and
monitors expenditures, identifying and reporting deviations to upper management.

When estimating his costs, Perry establishes a management reserve, usually 3 to 5 percent of the total
estimate for the project, to address unexpected costs. This reserve increases the overall cost estimate for the
project.

Later, while controlling his project, Perry uses the cost estimates to compare to actual expenditures. Of
particular importance are estimates versus actual costs up to a given point. If the actual costs exceed the
estimated costs up to a specific point, an overrun exists. If the actual costs are less than the estimated costs up
to a specific point, an underrun exists. Perry looks for overruns and underruns on a task-by-task global basis.
If the feedback has an overrun, for example, Perry takes corrective action.

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