1. Setting Project Budgets
1.1 Business Case Input
Preparing a project budget is an integral part of establishing the business case for a project. An evaluation of the financial requirements is central to determining whether the project is viable or not and forms an important element of the benefits model. At the most fundamental level, budgeting should answer the questions:
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‘What is the cost of undertaking this project?’
‘Is any external funding sufficient to cover the costs?’
‘To what degree do cost and benefit balance up?’
‘Where there is competition for financial resources, is this project a priority?’, and
1.2 Following Project Approval
As with any forecast or plan, the budget plan is likely to change as activities unfold. It is therefore useful to undertake a sensitivity analysis to look to what likely impact any change in costs and income may have on the overall budget and assess whether the project is high or low risk in financial terms. This will normally be covered during the risk assessment/risk management process and will inform the broader cost-benefit analysis for the project.
1.3 Estimating
The types of costs incurred in a project will be split between capital or one-off costs and operational (revenue) or ongoing costs. The table below shows some of the major cost headings and suggests issues to think about when trying to cost those items.
Cost Heading Issues to consider
Hardware
Software
Equipment
Project Staff
Is it more cost effective to buy or lease? Do you need maintenance agreements for printers etc.?
Include recruitment costs e.g. advertising or agency fees. Include employers on-costs – these are currently +22% of salary.
Do you need to allow for overtime working?
Other Staff Time Do you need to reimburse other departments for staff time assisting the project e.g. porters moving equipment, IT staff overtime, staff attending meetings/training?
Consultancy
Is it more cost effective to buy or lease? Include maintenance agreements. If purchasing will you pay up-front or enter into a financing agreement?
How many licences are required in each phase of the project? Are future annual increases capped?
Staff
Development
Are consultants paid a daily rate or a fee for the job? What are their daily travel and expenses limits? Where will they be travelling from and how often?
What training is required at each stage of the project and for how many people? Can you save money by advance block booking of external training? Is it more cost effective to train on-site rather than pay travel costs? Are there any online training materials available?
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Cost Heading
Office
Overheads
Travel
Hospitality
Issues to consider
Include any chargeable items such as heating, telephones, security, postage etc.
Include travel to meetings, conferences and training courses.
Will you be required to provide catering for meetings or training events?
Consumables Stationery, printer cartridges etc.
Contingency What is a reasonable contingency estimate given the amount of risk and uncertainty in the project?
2. Managing Project Budgets
Reviewing and reporting on the project budget is a routine part of managing projects.
The IT Services (ITS) Project Manager should monitor the budget plan and keep information on commitments and actual expenditure up to date.
2.1 Forecasting
Financial information is often prepared on an exception-reporting basis with the focus on things that are significantly different to the original budget. When any major discrepancy occurs, the ITS Project Manager is charged with the responsibility to identify why the variance has happened and whether it constitutes a systemic failure.
Appropriate corrective action can be agreed and implemented.
2.2 Budget Forecasting
Most financial reporting makes no immediate allowance for project tasks and activities being performed early or late. If things are going well and outputs are being delivered early, then the project may be spending money quicker than planned. Conversely, if the project is behind schedule operationally, costs may not have been incurred by the planned dates, so expenditure figures look artificially good. As long as any variance can be explained it is quite normal to review and update the budget at appropriate intervals in order to reflect actual activity.
When the project comes to an end various accounting tasks need to be performed such as making sure that all invoices have been received and paid and any regular charges have been cancelled or transferred to operational budgets (e.g. office costs, insurances etc.). A final check should establish whether all commitments have been discharged and whether there are any unused commitments which can be cancelled.
2.3 Reconciliation
All financials will need to be reconciled with the appropriate Finance Representative to ensure the Agresso system is aligned to the “actuals” within the project Budget Plan .
At this point there will need to be agreement about what to do with any underspend or overspend. The ITS Project Manager may also need to account for the transfer of responsibility/ownership for capital assets and facilities used by the project.
The End Project Report covering all project activities will include the final accounts and a review of costs and benefits.
Appendix A: Related Documents
Budget Plan Template
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