Understand a project manager’s role in building a budget and the types of costs that go into one.
- [Voiceover] With most projects, money is important. Whether you're trying to make it, save it, or at the very least, stay within a budgeted amount. Project cost is one of the three key constraints you need to manage. And the project budget is your starting point. The project budget should be a realistic estimate of the cost of the work you've identified in the work breakdown structure. If your estimate is unrealistically high, the project could be cancelled.
If the estimate is too low, the project won't deliver the financial benefit it's supposed to. You estimate the total project cost by calculating all the costs associated with completing the project work, including labor, materials, and other costs, like travel. Early in the project, you can estimate costs for the first few levels of your work breakdown structure to get a rough estimate of the project budget. Then, you can create more accurate estimates as you learn more about the project.
Labor cost is usually a big part of a project's cost. Labor cost is what you pay people who work on a project. If you hire vendors or contractors, their charges go directly into project labor costs. For employees, you typically use the burdened cost. That is, salary and employee benefits, which you can obtain from your accounting or human resources department. Projects might use other types of time-based resources, such as equipment or office space that you rent.
Include these equipment and other time-based costs in your calculations. The third type of cost is material cost, such as the equipment being installed in the conference center and hotel, and the construction materials for remodeling. Finally, be sure to include other types of ancillary costs that don't fit in the previous three categories. For example, travel, training expenses, and registration fees fall into this catch-all category.
Have you ever gotten into a cash crunch when you didn't have enough money on hand to pay expenses? Projects can run into cash flow problems, too, unless you determine when the project expenses will occur. All you need to do that, is create your project schedule and associate costs with the resources you've assigned to tasks. In most projects, management has allocated money for the project. If your cost estimate is higher than the allocated amount, you may need to figure out how to reduce the project cost.
For example, you can eliminate non-essential expenses, find less expensive resources, cut scope, and so on. In the Conference Center Project, management allocated $1.5 million. The estimate is also about $1.5 million. So things are looking good, so far. The project budget is the cost target you need to aim for as you manage a project. To learn more about creating and working with project budgets, watch Bob McGannon's course, "Managing Project Budgets".
Bonnie Biafore has always been fascinated by how things work and how to make things work better. In this course, she explains the fundamentals of project management, from defining the problem, establishing project goals and objectives, and building a project plan to managing team resources, meeting deadlines, and closing the project. Along the way, she provides tips for reporting on project performance, keeping a project on track, and gaining customer acceptance.
- Defining the components of a project
- What it takes to be a project manager
- Using project management software like Microsoft Project
- Managing project scope, budget, and schedule
- Managing project resources, including people
- Managing project risk
- Initiating a project
- Identifying and managing stakeholders
- Identifying requirements and deliverables
- Developing a project plan
- Building a project schedule
- Assigning resources to tasks
- Understanding the critical path
- Running the project
- Managing teams
- Monitoring performance
- Closing a project
Skill Level Beginner
1. Getting to Know Project Management
2. Exploring Project Management Knowledge Areas
3. First Things First
How to develop requirements4m 19s
4. Developing a Project Plan
5. Building a Project Schedule
6. While You Run the Project
7. Working with Teams
8. Monitoring and Controlling Progress and Performance
9. Closing a Project
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