Defining Budgets 151
Defining Budgets
In this chapter
Top-Down Budgeting
Establishing Budgets
Establishing a Monthly Spending
Plan
Tracking Budget Changes
Establishing Funding
Tracking and Analyzing Budgets
Budgets consist of the total estimated effort (or quantities) necessary, and the cash flow required, to complete a project. Before a project starts, the resource/cost manager, along with the operations executive, program manager, and project manager, determine scope and budget requirements, and set these estimates. As requirements change, resource and financial support are adjusted to compensate for those changes. The individuals involved in project funding and financial support can perform top-down estimating and log changes to the budget in the project planning stage, or after the project is underway. The module tracks these changes, while retaining the original amounts. Read this chapter to learn how to establish a budget, note and implement changes to it, and track monthly spending and variance at various levels in your organization—enterprise project structure (EPS) node, project, and work breakdown structure (WBS).
Primavera - Project Management
152 Part 2: Structuring Projects
Top-Down Budgeting
The ability to perform top-down planning is key to organizational-wide planning and control. If an organization’s projects have a budget of $5 billion over the next two years, the details probably will not be worked out until some period after the first project commences. The structure used by a company to organize its projects must be flexible enough to allow each project and group of projects to maintain its WBS and to draw only against the resources normally allotted to it.
The module facilitates a top-down budgeting approach to cost management. The resource/cost manager or other person responsible for making decisions about project launches generally establishes high-level budget estimates. These estimates are set at each EPS node. Project managers distribute the budgets to the projects for which they are responsible in each node, as shown in the following example.
Set original budget estimate at EPS node. |
Assembly |
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Distribute original budget at the project level. Values |
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Auto |
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do not roll up, and distributed values do not have to |
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equal the budget of the higher-level EPS node. |
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Conv |
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Corporate |
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FS-upg |
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Facilities |
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Bldg |
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$6,000,000
$4,000,000
$2,000,000
$1,500,000
$1,500,000
$3,000,000
$2,500,000
Hydra-DE $500,000
Once budget estimates are set at the EPS level, you can establish a monthly spending plan to keep track of cash flow for each node and project.
Primavera - Project Management
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Defining Budgets |
153 |
Assembly |
$6,000,000 |
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MAY03 |
$180,000 |
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JUN03 |
$360,000 |
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Spending plan at EPS node |
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JUL03 |
$710,000 |
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AUG03 |
$2,000,000 |
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AUTO |
$4,000,000 |
MAY03 |
$100,000 |
JUN03 |
$200,000 |
JUL03 |
$300,000 |
AUG03 |
$850,000 |
CONV |
$2,000,000 |
MAY03 |
$100,000 |
JUN03 |
$170,000 |
JUL03 |
$450,000 |
AUG03 |
$850,000 |
Spending plan at project level
With spending plans in place, you can compare the monthly totals for the EPS node with those of all projects in the node, to ensure monthly spending does not exceed your original budget estimates.
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Spending Plan |
Spending Plan Tally |
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(Assembly) (AUTO+CONV) |
Variance |
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MAY03 |
$180,000 |
$200,000 |
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– $20,000 |
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Negative variance indicates a |
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JUN03 |
$360,000 |
$370,000 |
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– $10,000 |
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need to reevaluate planned |
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spending during these |
JUL03 |
$710,000 |
$750,000 |
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– $40,000 |
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months. |
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AUG03 |
$2,000,000 |
$1,700,000 |
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$300,000 |
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If your projects use funding to support budgets, you can also set up a Funding Source dictionary, which you can then use to quickly assign specific funding sources to budget items as you develop projects.
When estimates are firmly established, resource/cost managers and team leaders can set budget amounts and spending plans at the WBS levels for which they’re responsible. Resources and budgets can then be allocated at the activity level.
Primavera - Project Management
154 Part 2: Structuring Projects
Once projects are underway, you can monitor budget changes using change logs, and continue to track monthly spending as actual costs are applied.
When your projects are complete, you can record and maintain the benefit, or return on investment (ROI), of performing each project. This value assists the operations executive in the strategic planning process when undertaking future projects.
The remainder of this chapter discusses how to establish budgets, spending plans, and funding, as well as how to track changes.
Primavera - Project Management