Project Budgeting and Resource Management

1. SEEM 3530 1 Project Budgeting and Resource Management Budget setting approaches Presenting the budget Project management Slack management Crashing Resource levelling Resource allocation

2. SEEM 3530 2 Introduction Project Budget specifies the activities and their costs so as to achieve its objective and fulfill all requirements to complete the project. Three tiers of budgets: Long-range, organization-level Midrange, functional unit Operational, project based.

3. SEEM 3530 3 Top-down Budgeting Approach Long-range budget is developed by the top management, and then passed to the functional managers and project managers who will develop the functional and operational budgets. Top-down approach to budget preparation: Step Organizational level Budget prepared at each step Top management Strategic budget based on organizational goals, constraints, and policies Functional management Tactical budget for each functional unit Project managers Detailed budgets for each project, including the cost of labour, material, subcontracting, overhead, etc.

4. SEEM 3530 4 Bottom-up budgeting Project managers prepare his/her budget proposal that supports efficient and on-schedule project execution. Functional managers prepare the budgets for their units, considering the resources required in each period of time. To management streamlines and integrates the budgets from the low levels into a strategic long-range organizational budget. Bottom-up approach to budget preparation Step Organization level Budget prepared at each step 1 Top management Setting goals and selection of projects (a framework for budget) 2 Project management Detailed budget proposals for projects including costs of material, labor, subcontracting, etc. 3 Functional management Midrange budget for each functional unit 4 Top management Adjustments and approval of the aggregate long plan budget resulting from the process

5. SEEM 3530 5 Iterative budgeting A combination of top-down and bottom-up budgeting

6. SEEM 3530 6 Presenting the budget The budget generated is easier to understand and use if it is presented clearly and concisely. The following recommendations can be adopted when preparing and presenting a project�s project Incorporate a schedule showing the time that expenditure and revenues (if any) are expected to be realised. Present the budget in quantitative, measurable units such as dollars or man-hours. Define milestones in terms of achievements of goals and expenditures/revenues. Use the budget as the baseline for progress monitoring & control. The budget should translate short-term objectives into work orders, purchasing orders, etc. Breakdown the budget to individual units responsible.

7. SEEM 3530 7 Budget Management The budget of a project specifies the scheduled expenditures and scheduled revenue as a function of time. Two approaches are used to manage the project to meet budget constraints: Slack management -- An approach that utilizes the slacks of activities to meet the organizational budget requirements. Crashing -- An approach that attempts to shorten an activity duration by adding more resource, so as to achieve a trade-off between cost and time.

8. SEEM 3530 8 Slack management Development of the budget of a project includes the derivation of the scheduled expenditures and the scheduled revenue as a function of time, subject to the time constraint and the total investment limit. The approach of slack management attempts to utilize the slacks of the activities to re-schedule the project, so that the time and monetary constraints are satisfied.

9. SEEM 3530 9 Slack management The process of selecting activities to re-schedule the project will follow the following priority: Non-critical activities that have free slack are the first candidates to be re-scheduled. Non-critical activities that have total slack are the next candidates to be re-scheduled. Finally, the critical activities are considered. Overall, our goal is to make the whole project to meet the time constraint while the monetary limit is satisfied.

10. SEEM 3530 10 Slack management -Example Consider the example project, with the activities, durations and costs given below: