Project budgeting. Types and purpose of the budget. Project stage

2024 Author: Howard Calhoun | [email protected]. Last modified: 2024-01-17 18:37

Project budgeting should be understood as the determination of the cost of those works that are implemented within a certain scheme. In addition, we are talking about the process of forming a budget on this basis, which contains the established distribution of expenses by cost item, type of work, by time of their implementation or other items.

Formation of the budget structure

How is the project's preliminary budget prepared? The structure of such is revealed through the chart of accounts accounting for the cost of a particular program. As a rule, in order to determine it, it is enough to have a traditional accounting estimate.

Budgeting is considered a cost plan or cost bookmark. This means that after preliminary planning, you need to understand how much, when and for what exactly the funds will be paid. Therefore, in this case, it is possible to use any method of presenting losses. However, it should be remembered that they must meet the practical requirements of the stakeholders,interested in them, as well as established standards. In addition, they must answer those questions that are of interest to project investors.

Budget submission forms

Both planned and actual budgets have certain presentation forms. So, among them it is important to note the following:

• schedules, which are a kind of cost plans;
• loss distribution matrices;
• bar charts of spending;
• similar cumulative loss graphs;
• line charts of cumulative costs over time;
• Displaying a circular loss structure.

It is worth noting that at different stages of the development of the project, different design of project and working documentation is relevant. The fact is that we are talking about the development of different types of budgets. They differ from each other both in the required accuracy and purpose. It is worth noting that the budget margin becomes much smaller as the project progresses.

Varieties and purpose of budgets

Reducing the error can be argued with data from the table below. So, consider the purpose and main types of budgets.

Project stages	Funding	Destination	Error, %
Design concept. The main idea in expanded form	Budget expectations. Exact Date	Advance planning for cash needs and payments	25-40
Justification of investments (feasibility study)	Provisional budget	Justification of cost items, planning for attracting and subsequent use of finance	15-20
Tenders, negotiations and agreements. For each stage separately	Updated budget	Scheduling settlements with suppliers and contractors	8-10%
Development of working papers. Each stage has its own calculation	Final budget	Directive restriction of the use of resources	5-8%
Project implementation and completion	Actual budget	Cost management (in other words, accounting and subsequent control). Project budget and cost estimates

Project budget and cost estimates

It is interesting to note that the project budget is similar to the estimate of the operating costs of one business element of the company. The main difference here is that it traditionally covers it in its entirety, i.e. from start to finish. In turn, the budget of the business unit is formed annually or quarterly. For the most effective control, it should be divided into two components: direct costs and indirect costs.loss.

The first type of budget is a key management and control tool for project managers, as well as directors of functional units who take part in it. This includes the costs (travel costs, salaries, and so on) of everyone who is included in the program team. In this case, each of the subjects performs separate tasks.

It is worth remembering that when justifying cost items, the following points are taken into account:

• cost of materials that are purchased;
• amount spent on production;
• cost of deviations from normal use of technology;
• amount spent on commissioning the product;
• supply cost;
• other expenses.

In turn, direct type costs should be presented as follows:

• in a broken down form - exactly according to the project structure to the level of executable tasks;
• include weekly expenses for staff salaries, materials (manufactured under contract or purchased) and others for each component and task of the intermediate value project;
• include overhead costs directly related to the payment of materials and labor;
• to be summed up according to the different tasks performed by the participating entities;
• provide management reserves (in other words, leave a certain reserve of cost and time just in case).

Importance of the budget process

Budgetingproject puts significant pressure on both its managers and departments. The fact is that it puts forward such an alternative: if we keep within the budget, then we act effectively, but if we exceed, the work is done poorly.

However, this requirement is often not applicable to the actual budgeting of the project. The fact is that budgets are both formed and implemented under certain pressure from a number of factors, both subjective and objective.

For example, a project manager who is hired is often forced to accept budgets developed and adopted without his participation, even if they seem unrealistic to him. Otherwise, the employee may be denied a contract. However, if he agrees with a budget that obviously does not meet the given deadlines, as well as with the resources available, then as soon as the achievement of certain results requires spending more than planned, the employee is forced to explain this problem, despite the fact that initially the budget was set at an extremely low level.

It is worth remembering that project budgeting can be rational. In this case, the purpose of the budget is primarily to establish the true cost of the project to the firm. Therefore, if the project manager accepts a budget that significantly exceeds the 15-20% margin of error acceptable for the cost justification stage (information from the table above), it is very likely that the situation will not be limited to explaining the structure of reasons to senior managementthis excess. In this case, the project manager is likely to lose his job.

How to avoid this?

To avoid such a situation, M. Thomsett, an American scientist, suggests managers to form their own project budgets. However, he points out a number of reasons for this behavior:

• You are responsible for reporting on the future costs of the project and the ability to spend their budget. This will not be possible if you work with a predetermined budget.
• Being a project manager, you should know better than anyone else about exactly how much a particular project costs. The budget you set is considered a monetary goal. It should satisfy you according to the following parameters: to give an opportunity to measure the success of the project and to be a way to measure the competence of the manager (that is, you).
• You must allow for some allowances in the budget lines. This is critical if future justifications for specific costs come into play. It should be added that the assumptions are compared with the possibilities for the current period, while possible complications are not taken into account. Only when you have the ability to compare at this level will the budget process function as planned.

Creating, tracking and executing a financial plan

You need to know that project budgets are formed, monitored and executed separately from the financial plan of the units involved in the business,company as a whole.

There are reasons for this:

• Projects don't tend to repeat themselves. Budgets of departments and subdivisions are formed annually. They are often reviewed every six months or more often. Projects end their existence immediately after their execution. The fact is that the time of the program implementation is not tied to the fiscal year. Revision of the budget is undesirable. The exception is cases when gross errors are found in the initial version or when the environment changes dramatically (it is in it that a specific project is being implemented).
• In the hands of the manager - direct control over the execution of the budget. It is worth noting that the financial plans of departments and divisions, as a rule, depend on the relationship that develops between several services: the execution department gives a cost limit to one or another department, based on information provided by another department; however, decisions about personnel and the system are made by top management. The project, on the contrary, uses the budget in accordance with two directions: the use of those resources that are available (achievements and personnel), they are already at the disposal and budget of the department, and the limited use of external type resources that are attracted temporarily. Hiring an additional employee results in fixed costs anyway; an additional unit of personnel for a project, usually employing forces already in the service.
• The success of budget execution is directly related to the impeccable adherence to the project action plan, as well as the schedule for the use of resources. It also consists ofdepending on how well the manager has planned the implementation of each phase, as well as on whether the employees participating in the project team adhere to the established schedule. If the implementation of a particular stage or work as a whole is delayed due to the need, for example, in human or time resources than was originally determined, this somehow affects the budget in an unfavorable way, that is, in the form of an increase in the cost of performing the project work.

Similar rules, at least in the ideal situation, should be used by managers of all departments of the company who have their own budget. It is worth knowing that each of them is responsible for not exceeding the budget level and, accordingly, overspending. However, in practice, only a minority of firms strictly follow this rule. On the other hand, only a few companies allow department directors to set the budget level that is really needed for the project being executed in the department.

Tenders, negotiations and agreements

Next, it is advisable to consider the culminating stage of the project: the organization of tenders, special sites, as well as the conclusion of cooperation and partnership agreements.

Under the tender should be understood competitive bidding, during which the choice of suppliers of marketable products and services is implemented. Municipal and state customers carry out their activities within the framework of 44-FZ On the contract system in the fieldpurchases of goods, works, services to ensure the state. and municipal needs.”

State corporations, organizations that implement regulated activities, natural monopolies work according to the law 223-FZ “On the procurement of goods, works, services by certain types of legal entities. persons” (for example, construction tenders).

Special venues

Commercial structures operate within the current civil legislation on the territory of the Russian Federation. They place information regarding their plans on the tender sites. Both individuals and legal entities that fully comply with the requirements of the customer and Russian legislation have the right to participate in procurement.

There are different tenders: open (that is, for all participants), for example, open tender, request for quotations, electronic auction, request for proposals; closed (that is, for a limited number of persons), for example, limited auctions and contests. Purchases can be made both in electronic form and in paper form.

It must be borne in mind that such an event requires serious preparation, in particular, legal, financial and technical. This is necessary in order to ensure the application and execution of the contract. Therefore, managers should initially set up their staff for teamwork, because the final result depends on the coherence of operations carried out by employees.

Main stages of tender implementation

Schematically, participation in such events can be represented as follows: Market analysis → Selection and further receiptelectronic signature → Registration → Search for a tender site → Preparation of financial security → Opening a special account (this is necessary for procurement participants in accordance with 44-FZ) → Preparation and subsequent submission of an application for participation in the procurement → Direct participation in the tender. The final step, of course, is getting the result.

Let's consider the main stage of the presented list: participation, for example, in a construction tender. It will be an electronic auction under 44-FZ. At a predetermined time, the customer begins to consider the applications of the participants. When your application is considered eligible for participation in the auction, you should calculate the minimum price level for which you are ready to supply a construction product or provide related services, organize work under this tender.

Electronic auction is conducted in real time. Thus, within ten minutes after submitting the last offer for the price, the participant has the right to make his own offer online at the “auction step”: from 0.5 to 5% of the NMCC. In other words, a step that can be taken at a time should not exceed 5% of the initial maximum price of the partnership (cooperation) agreement indicated in the notice.

According to the results of the auction, a protocol is drawn up. After the auction is considered completed, the stage of consideration of additional parts of applications begins.

Conclusion

So, we have considered the category of budgeting:purpose and types of budget, project stages. In addition, we analyzed the main stage in more detail. It is worth noting that even a beginner can win the tender. How to put it into practice?

Electronic trading involves the presence of customers, that is, money. However, the tender excludes informal relationships. There is no way to reach an agreement. Failure to comply with the conditions set out in the contract can result in the loss of the agreement, loss of funds, and loss of the opportunity to participate in other auctions due to disqualification. Beginners often break these rules due to banal inattention.

First of all, you should get your hands on tenders that do not contain strict rules. For example, at the auction of a commercial plan. Only after that it is advisable to move on to serious tenders, which are regulated by the procurement legislation in accordance with 44-FZ and 223-FZ. The main condition for victory is nothing more than mindfulness. First of all, you need to think about the quality of work, and not about the amount of the agreement.

Imagine that you still won. You have a contract in your hands. Will the company be able to find additional capacities and forces to fulfill it without problems? And if not, how much money will it take to hire workers or rent equipment? Will the deal remain profitable?

It is worth remembering that among the mistakes of bidders, the key ones are such as violation of deadlines, inattentive study of documentation, attempts to take part in many tenders at the same time, malfunctions of the technical plan,trading at a loss. All this can lead to adverse consequences. That is why it is necessary to prevent all the listed shortcomings in advance.