Cost Estimation<br />Cost Budgetting<br />Work Authorization<br />
Cost Budgetting<br />The output of the budgeting process is an approved project budget that is allocated to different cont...
The Budget<br />The budget is the amount of funding authorized to complete a “chunk” of the project scope<br />This “chunk...
Budget Sources and Structure<br />The Budget is provided by company management via the Sponsor team<br />It is authorized ...
Typical Budget Structure<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management...
Different “layers” of management remove the pieces of the budget “pie”       for which they are     responsible, and      ...
Who’s budget? Who gets measured at what baseline?<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-ne...
The “Corporate” budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management R...
The total anticipated project cost or Contract Budget Base (CBB) is determined after negotiations by removing the profit.”
Occasionally, some details remain un-negotiated, but have some “provisional” funding allocated to   allow the project to p...
This is the Negotiated Contract Cost, and what the “organization” calls “the budget </li></ul>Negotiated <br />Contract Co...
The “Sponsor’s” budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management R...
The “Project Manager’s” Budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Mana...
The Project Manager will decide how much of the PMB to retain as Undistributed Budget to deal with short term issues and p...
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3 pm3 c_3%20-%20the%20program%20budget

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3 pm3 c_3%20-%20the%20program%20budget

  1. 1. Cost Estimation<br />Cost Budgetting<br />Work Authorization<br />
  2. 2. Cost Budgetting<br />The output of the budgeting process is an approved project budget that is allocated to different control accounts within a distributed budget<br />The total project budget is flowed down from the contract negotiation<br />Management and the PM divide up this budget to create a budget structure that defines the total funding available to be spent in the program as the distributed budget.<br />A control account structure is developed based on the work breakdown and organizational breakdown structures.<br />The distributed budget is “rationally” allocated to the control accounts.<br />
  3. 3. The Budget<br />The budget is the amount of funding authorized to complete a “chunk” of the project scope<br />This “chunk” may be the entire project scope in the SOW and estimate, or a subset of this – for example:<br />customer funding may be negotiated in phases<br />A customer may solicit a proposal for both the R&D and production costs for an innovative, risky product, but only fund the R&D portion until it is evident it will work.<br />management may wish to control the funds “at risk” at any one time<br />For the same project, the customer may fund both phases, but management may only release the R&D portion in order to ensure that the product developed is profitable before authorizing production. <br />The budget is therefore related to the original estimates provided, but not necessarily the same, and usually less. Budget review is essential to:<br />Understand the scope approved<br />Highlight differences between funds authorized and funds estimated <br />
  4. 4. Budget Sources and Structure<br />The Budget is provided by company management via the Sponsor team<br />It is authorized initially in the Project Charter, with changes introduced via the Integrated Change Control process (Changing the Plan)<br />The budget amount authorized is usually:<br />For customer funded activity, related to the amount agreed to within the proposal/contract negotiation, the Contract Price<br />For internally funded activity, an amount provided by management based on the original estimates provided and available company financing<br />In both cases, the total budget amount will be allocated for various purposes, among which is covering the costs of performing the project work<br />This allocation creates a number of budget “baselines” that comprise the budget “structure” <br />
  5. 5. Typical Budget Structure<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management Reserve<br />Undistributed Budget<br /> Control Accounts Planning WBS<br />Work Packages Planning Packages<br />Contract Price<br /><ul><li>Budget “Baselines” represent “yardsticks” by which the cost performance of different levels in the company can be measured
  6. 6. Different “layers” of management remove the pieces of the budget “pie” for which they are responsible, and measure lower layers based on what is left</li></ul>Contract “Baselines”<br />Contract Budget <br />Base (CBB)<br />Negotiated <br />Contract Cost<br />Performance <br />Measurement<br />Baseline (PMB)<br />Distributed <br />Budget<br />
  7. 7. Who’s budget? Who gets measured at what baseline?<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management Reserve<br />Undistributed Budget<br /> Control Accounts Planning WBS<br />Work Packages Planning Packages<br />Contract Price<br />Business Management – <br />Corporate (“P&L”)<br />Contract “Baselines”<br />Contract Budget <br />Base (CBB)<br />“Resource” Management - <br />Sponsor (“Cost Centre”)<br />Negotiated <br />Contract Cost<br />Performance <br />Measurement<br />Baseline (PMB)<br />Project Management <br />Control Account <br />Management <br />Distributed <br />Budget<br />
  8. 8. The “Corporate” budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management Reserve<br />Undistributed Budget<br /> Control Accounts Planning WBS<br />Work Packages Planning Packages<br /><ul><li>The Contract Price is the anticipated total amount the seller will receive.
  9. 9. The total anticipated project cost or Contract Budget Base (CBB) is determined after negotiations by removing the profit.”
  10. 10. Occasionally, some details remain un-negotiated, but have some “provisional” funding allocated to allow the project to proceed.</li></ul>Contract Price<br />Contract Budget <br />Base (CBB)<br /><ul><li>Once negotiated, this will be incorporated into the lower level budgets but, in the interim, the CBB will be reduced by this amount to give the funds that can be released to the team
  11. 11. This is the Negotiated Contract Cost, and what the “organization” calls “the budget </li></ul>Negotiated <br />Contract Cost<br />Performance <br />Measurement<br />Baseline (PMB)<br />Distributed <br />Budget<br />
  12. 12. The “Sponsor’s” budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management Reserve<br />Undistributed Budget<br /> Control Accounts Planning WBS<br />Work Packages Planning Packages<br />Contract Price<br /><ul><li>The Sponsor team will consider the risks and assumptions highlighted within the Project Charter, and will retain a Management Reserve to allow for funding of unanticipated occurrences during the project (eg. Fires, economic issues, etc.)</li></ul>Contract Budget <br />Base (CBB)<br />Negotiated <br />Contract Cost<br />Performance <br />Measurement<br />Baseline (PMB)<br />Distributed <br />Budget<br />
  13. 13. The “Project Manager’s” Budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management Reserve<br />Undistributed Budget<br /> Control Accounts Planning WBS<br />Work Packages Planning Packages<br />Contract Price<br /><ul><li>The remaining budget is under the PM’s control, and forms the project Performance Management Baseline (PMB)
  14. 14. The Project Manager will decide how much of the PMB to retain as Undistributed Budget to deal with short term issues and performance variation, and how much to distribute
  15. 15. Of the distributed amount, some will be distributed to the team to perform work against Work Packages, and some will be allocated to future work that is not yet authorized, but is kept in Planning Packages</li></ul>Contract Budget <br />Base (CBB)<br />Negotiated <br />Contract Cost<br />Performance <br />Measurement<br />Baseline (PMB)<br />Distributed <br />Budget<br />
  16. 16. Project Budget Reserves<br /><ul><li>Reserves are a means of mitigating program risks that will be discussed in Week 6
  17. 17. Undistributed budget is to mitigate “Known Unknowns”
  18. 18. Management Reserve is to mitigate “Unknown Unknowns”</li></li></ul><li>The “Project Team’s” Budget<br />Fee<br />&<br />Profit<br />Authorized/<br />Non-priced Work(non-negotiated)<br />Management Reserve<br />Undistributed Budget<br /> Control Accounts Planning WBS<br />Work Packages Planning Packages<br />Contract Price<br /><ul><li>Within the Distributed Budget, the Project Manager allocates budget:
  19. 19. to Control Accounts for the near term execution of Work Packages
  20. 20. Planning Packages for purposes of long term planning and resource forecasting
  21. 21. At the Control Accounts, control over the budget passes to the Control Account Managers (CAMs)</li></ul>Contract Budget <br />Base (CBB)<br />Negotiated <br />Contract Cost<br />Performance <br />Measurement<br />Baseline (PMB)<br />Distributed <br />Budget<br />
  22. 22. Work vs. Planning Packages<br />Control Account No. 1<br />Control Account No. 6<br />Work Packages<br />Planning Package<br />Control Account No. 2<br />Control Account No. 8<br />Work Packages<br />Planning Package<br />Planning Package<br />Control Account No. 3<br />Control Account No. 5<br />Work Packages<br />Planning Package<br />Time Now<br />Time<br />6 Months<br />
  23. 23. A Typical Budget Structure<br />Contract Price<br />Total Allocated<br />Fee<br />Budget (TAB)<br />TAB = CBB + OTB<br />Over Target Baseline<br />Contract Budget<br />(OTB) (if Applicable)<br />Base (CBB)<br />Negotiated<br />Authorized/<br />Contract Cost<br />Undefinitized Work<br />CBB = MR + PMB<br />Performance Measurement<br />Management<br />Baseline (PMB)<br />Reserve (MR)<br />PMB = UB + FCOM + DB<br />Undistributed<br />Distributed<br />Facility Cost of<br />Budget (UB)<br />Budget (DB)<br />Money (FCOM)<br />Control Account<br />Summary<br />Budgets<br />Control Accounts<br />Work Packages<br />Planning Packages<br />Measured<br />Level of Effort<br />Apportioned Effort<br />Effort (Discrete)<br /><ul><li>The program and senior management will establish a budget “flowdown” model that incorporates various “baselines” and “reserves” in order to:
  24. 24. Authorize what can be spent
  25. 25. Establish who controls budgets at each level
  26. 26. Set up a structure against which performance can be measure</li></li></ul><li>“Rolling Wave” Definition<br />Near term/known events scheduled and resource loaded in detail to “activity” level<br />Longer term activities scheduled at increasingly reduced levels of detail<br />Depending on risk reduction philosophy, these may either have no budget/ resources allocated, or may be “lumped” as “Planning Packages”<br />

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