LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA

MODULE COLLEGE OF BUSINESS ADMINISTRATION

University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 1 of 31

7 Budgeting and Cost Estimation

INTRODUCTION

This module was designed and written to guide you to discuss the different
methods of budgeting and its impact on project management. It also discusses cost
estimation, some of its issues, the factors that influence the result, and the methods of
improving the skills.

Target Learnings
After finishing this module you are expected to:

1. Describe the intent of a budget concerning

the organization’s goals and priorities
2. Identify and describe the different methods
of budgeting.
3. Describe the impacts of budgeting in
project management.
4. Discuss some of the issues concerning cost
estimation.
5. Describe the use of the learning curve.
6. Describe the methods of improving cost
estimation skills.
7. Described a method for determining whether or
not cost estimates are biased.
8. Describe other major factors affecting cost
estimation.
 LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA
MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 2 of 31

Directions: Read the following and answer the question below.

Read Sec. 7.1, Chapter 7

Sec. 7.1, Chapter 7 – Estimating Project Budgets. This section discusses the development of
the project budget – how much it will cost – including the effects of potential price inflation.

Reading/s: Sec. 7.1, Chapter 7 –. Estimating Project Budgets, Page 294, Project Management, A Managerial
Approach, ., 7th Edition, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ, 2009, Meredith, Jack R.,
Mantel Jr., Samuel J,

Answer the Following Questions:

1. Describe the top-down budgeting process.

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2. Describe the bottom-up budgeting process.

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3 What are some potential problems with the top-down and bottom-up budgeting processes?
What are some ways of dealing with these potential problems?
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 LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA
MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 3 of 31
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A. Directions: Read Sec. 7.1, Chapter 7 on page 299, and answer the following
questions.

Read Sec. 7.1, Chapter 7

Sec. 7.1, Chapter 7 – Work Element Costing, the Iterative Budgeting Process, and Activity
Budgeting vs. Program Budgeting. This section discusses the actual process of building a
budget – either top-down or bottom-up.

Reading/s Sec. 7.1, Chapter 7 – Work Element Costing, the Iterative Budgeting Process, and Activity
Budgeting vs. Program Budgeting., Pages 299 – 303, Project Management, A Managerial Approach, ., 7th
Edition, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ, 2009, Meredith, Jack R., Mantel Jr., Samuel J.

1. What is “program budgeting”?

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2. What is the difference between activity – and category – oriented budgets?

 LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA
MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 4 of 31
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3. What is an “Iterative Budgeting Process”?

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Explain

Let us continue our discussion about budgeting

and cost estimation. In this part, we will take a
look at improving the process of cost estimation.
Our aim is to ascertain the different ways to
manage the risks associated with the chance
events that occur on every project and describe
the learning curve.

Read Sec. 7.2, Chapter 7

Sec. 7.2, Chapter 7 – Improving the Process of Cost Estimation. This section discusses the
different ways to manage the risks associated with the chance events that occur on every
project, the learning curve.

Reading/s: Sec. 7.2, Chapter 7 – Improving the Process of Cost Estimation Pages 305 – 313, Project
Management, A Managerial Approach, ., 7th Edition, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ,
2009, Meredith, Jack R., Mantel Jr., Samuel J.
 LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA
MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 5 of 31

A. Guided Practice
Directions: After reading Sec. 7.2, Chapter 7 kindly answers the following.

1. What is a variance?
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2. Describe the learning curve phenomenon.

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3. Why is learning curve analysis important to project management?

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 LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA
MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 6 of 31
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4. Site several reasons why firms would choose to fund a project that is not profitable.
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5. Name the two generic types of estimation error, and discuss each.
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Note: The evaluation/assessment will be posted/published in the Google Classroom.

Thank you!
Reference: Project Management, A Managerial Approach, ., 7th Edition, John Wiley &
Sons, Inc., 111 River Street, Hoboken, NJ, 2009, Meredith, Jack R., Mantel Jr., Samuel J.

CONTINUING INTEGRATIVE CLASS PROJECT

 LEARNING PAMANTASAN NG LUNGSOD NG MUNTINLUPA
MODULE COLLEGE OF BUSINESS ADMINISTRATION
University Road, Poblacion, Muntinlupa City
QR/CBA/0__ Course Title: PROJECT MANAGEMENT
Issue No. 0 Revision No. 0 Effectivity Date 7 September 2020 Page No. 7 of 31

Although probably a minor task for this project, create a program budget using both top-
down and bottom-up budgeting. Reconcile any differences by discussion between the PM,
subgroup leaders, and the student(s) responsible for the task.