Student Assessment

BSBPMG514 Manage project cost

Provide answers to all of the questions below:

1. Discuss the key purpose and objectives of budgeting in project management.
A project budget is the total amount of monetary resources that are allocated for particular goals
and objectives of the project for a specific period of time. The purpose of project budget
management is to estimate and control project cost within the approved budget and to achieve the
stated goal of the project. A budget serves five main purposes they are communication,
coordination, planning, control and evaluation. In the budgeting process, managers in every
department justify the resources they need to achieve their goals.

2. Outline the main steps in the budgeting process for a project.

Budgeting is done in order to keep track of the expenditures and income. It serves as a monitoring
and controlling method in order to manage the finances of a business. The main steps in the
budgeting process for a project are as follows:
Planning
Structuring
Estimating
Allocating
Monitoring
Controlling

3. Discuss why key performance indicators are used in budgeting and provide three examples of
financial key performance indicators that can be used to determine the effectiveness of a
budget.
KPI are used in budgeting to help decision to control budget. KPIs are measures by which a
company can monitor its progress throughout a specified period of time. By closely managing
budgets to achieve a KPI target, a company can reduce unnecessary spending and improve its
bottom line. KPIs also help a company plan future spending. The three examples of financial
key performance indicators that can be used to determine the effectiveness of a budget are as
follows:
Spending
Average
Order of magnitude

4. Explain the use of milestones in budgeting.

Milestones make it easier to keep projects on track by calling out major events, dates, decisions,
and deliverables.  Budget Milestones is a powerful tool for managing the budget among internal
stakeholders, sharing information with line departments and communicating with the public. It helps
finance teams get the numbers right and also helps in policy decision making. Milestones can be
used as a reminder to complete necessary tasks, such as a budget check or an external review of
the project. 

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5. Explain the importance of budgetary control.
A budgetary control is a mechanism that helps senior managers ensure that spending limits are
adequate. This control is important because spending excesses have an unfavourable impact
on corporate profits. Budgetary control is a continuous process which helps in planning and
coordination. It also provides a method of control. According to Brown and Howard “Budgetary
control is a system of coordinating costs which includes the preparation of budgets, coordinating
the work of departments and establishing responsibilities, comparing the actual performance with
the budgeted and acting upon results to achieve maximum profitability”.

6. Explain the purpose of using spreadsheets for developing budgets and two key features of
using spreadsheets.
Spreadsheets works well for budgets, especially if you have completed a production budget in one
worksheet, and this needs to link to the master budget. Then, if the production budget changes, it
automatically updates the master budget. Spreadsheets are especially useful any time you have
numerical data to store, organize, calculate and present in easily understood formats.
Spreadsheets allow the business person to accomplish tasks as diverse as keeping track of
receipts and financial forecasting and planning.

Formulas and functions

A spreadsheet allows to design unique formulas to give insight into data. Many of these functions
can easily be used and displayed by either building a custom formula or function, or using one of
the software's present options.

Rows and columns

Through a spreadsheet's grid system of rows and columns, all of your information is neatly
organized in one easy-to-read space.

7. Explain two methods for conducting project cost estimating and at least one advantage and
disadvantage of each.
Expert judgement method
Expertise should be considered from individuals or groups with specialized knowledge or
training in team and physical resource planning and estimating.
The advantage of this method is it helps to find creative solutions.

Analogous estimating method

Analogous cost estimating uses the values such as scope, cost, budget, and duration or
measures of scale such as size, weight, and complexity from a previous, similar project as the
basis for estimating the same parameter or measurement for a current project.
The advantage of this method is collecting data for each project that build up a database which
can be used in future projects for comparisons of cost and time.

8. Explain earned value management and its application in evaluating costs.

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Earned value management System (EVMS) is a performance measurement baseline. It’s a
systematic process for measuring the project performance at any given point in time within the
project phase. It integrates project scope baseline with cost baseline and schedule baseline.
This methodology measures project performance with an integrated schedule and budget,
which is based on the project work breakdown structure (WBC).
The EVMS monitors the following three key dimensions:
Planned Value (PV)
Earned Value (EV)
Actual Cost (AC)

9. Explain project cost management and its application in evaluating costs.

Cost management is the process of estimating, allocating, and controlling project costs. This
cost management process allows a business to predict coming expenses in order to reduce the
chances of budget overrun. Projected costs are calculated during the planning phase of a
project and must be approved before work begins. 
Some of the most important tools for evaluating costs are:
Budgeting feature
For effective cost project management, you need an accurate budget. This requires a
budgeting tool that enables you to track costs using custom hourly rates and tailored financial
fields.
Time tracking software
This is particularly useful when trying to estimate resource cost in project management. When
team members log hours using a task timer, project managers can use this data to determine
how long a certain task takes, and allocate resources accordingly.
Reporting and analytics tools
For real-time insights into their cost management process, project managers should generate
weekly reports with detailed charts and graphs. Analytics dashboards can also be created for a
project portfolio overview.

10. Explain how a cost plan can assist in managing costs and its use over the project life cycle.
A cost plan determines the fiscal feasibility of an initiative. This is done by setting
the lifecycle budgets and cost controls to manage the delivery and quality of the initiative's
outcomes over a set timeframe which means that cost plans are living artefacts, just like project
management plans. Cost plan is used as a way of controlling the estimated costs during the
planning phase of a project, and needs to be managed throughout the lifecycle of any initiative in a
project.

11. Explain the key procedures that should be followed in the event of a cost change process
during a project.
The change control process in project management ensures that each change proposed during a
project is adequately defined, reviewed and approved before implementation. The change control
process helps avoid unnecessary changes that might disrupt services and also ensures the
efficient use of resources. The key procedure that should be followed in the event of a cost change
are as follows:
1. Plan
2. Analyse

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3. Review
4. Build
5. Implement
6. Close

12. Explain two processes that can be used to measure costs against project outcomes.

The purpose of cost performance measurement is to help organizations understand how decision-
making processes or practices led to success or failure in the past and how that understanding can
lead to future improvements. Key components of an effective cost performance measurement
system include these:
 Clearly defined, actionable, and measurable goals that cascade from organizational
mission to management and program levels
 Established baselines from which progress toward the attainment of goals can be
measured

13. Outline the key role and at least four responsibilities of a project manager in relation to cost
management.
 
Project managers play the lead role in planning, executing, monitoring, controlling and
closing projects. They are accountable for the entire project scope, project team, resources,
and the success or failure of the project.
The four responsibilities of project manager in relation to cost management are as follows:
Cost estimating and developing budget
Controlling time management
Analysing and managing project risk
Activity and resource planning

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