Assessment Submission Sheet Course BSB50820 – Diploma of Project Management
Unit Code and Name BSBPMG533 – Manage project cost
This is an individual assessment. This short answer assessment is one form of assessment that is used to collect evidence of competency for this unit. If you need help understanding any questions, ask your assessor to explain.
To be deemed competent you will need to successfully demonstrate the following:
You must submit:
Satisfactory answers for all questions
Answer each question in as much detail as possible, considering your organizational requirements for each one.
1. Briefly explain and give one example for each of the following:
2. Explain top down and bottom up method for costing.
3. What tools can be used for Project cost analysis?
4. What strategies can be implemented for managing costs in your project?
5. Suggest one way you could evaluate the cost management of a project.
6. In your own words briefly explain favorable and unfavorable Project cost variations.
7. List 3 organizational policies and procedures you need to follow when managing Project cost.
END OF ASSESSMENT
This is an individual assessment. This assessment has three parts. This assessment is one form of assessment that is used to collect evidence of competency for this unit. If you need help understanding any questions, ask your assessor to explain. Please ensure your answers are based on the given project scenario.
To be deemed competent you will need to successfully demonstrate the following:
You must submit:
Satisfactory answers for all questions
Participate in a role play
Submit a Project cost management plan
Report to CEO
Submit Project variance calculation
Submit Project review report
You are the newly appointed Project member reporting to the Project Manager for “TECHWizards” a medium sized IT company specializing in database management, web development and digital marketing for its clients.
Your organization is undertaking a significant IT project to move its infrastructure to Cloud Computing this will enable the organization to save costs in the long run, minimize disruptions to its services, reduces down time, reduce its carbon footprints.
Tech wizards have approached DOSCLOUD to complete the necessary upgrades and transition to the cloud.
Read the given DOSCLOUD Project Initiation Plan to gather and interpret the required information.
a. You must discuss budget preparation and budget control requirements for the proposed infrastructure upgrade activity given in the Project initiation plan. Your budget should be achievable and realistic. Recognize that stakeholders may need to be consulted when establishing these budget objectives.
You are meeting with the project stakeholders (other classmates) and project sponsor (your assessor) to discuss and finalize the project budget for the infrastructure upgrade.
Please prepare and submit a role play script that you will use for your role play.
Project manager- Good morning all of you
Stakeholders- Good morning
Project manager- We are here to discuss the budget plan and requirements of budget control for the infrastructure. For that matter, we have approached DOSCLOUD for completing the necessary upgrades and cloud transition. We want to consult all of you before processing further.
Stakeholders – For what purpose we are making the budget?
Project manager- As you all know that our organization is undertaking a significant IT project for moving the infrastructure to Cloud Computing which will enable our organization in saving costs in the long run, minimize disruptions for the services, reduce downtime, and reduce carbon footprints. So, for that, we need a budget plan and a control plan.
Stakeholders- That is great and indeed a good initiative for our company. It is important to consider all the required factors and processes while making the plan.
Project manager- can you please elaborate.
Stakeholders- first of all, we need to determine our incomes and expenses. Then, we can choose our budget plan by adjusting any further things.
Project manager- yes, we considered everything. We prepared budgets by updating assumptions and reviewing bottlenecks. Available funds have been checked, stepping costing points. Then, we created a budget pack after that we issued a budget package. At last, obtaining revenue forecast and obtaining the budgets.
Stakeholders- what about the budget control process?
Project manager- we will first establish the actual position for the budget and then compare it with the actual. Establishing reasons for variances and finally taking required actions Stakeholders- That would be perfect.
Project manager- we have given you the set budget plan. Kindly, go through it. We would consider if you want to make any changes to the given plan.
Stakeholders- okay, the plan is perfect.
Project manager- thank you much for giving your precious time, would love to hear any queries.
b. After consulting with your Project sponsors, you are tasked to develop a cost management plan for your project. And a draft budget as this will serve as a benchmark when you use cost control methods to monitor cost in your project.
In your Project draft budget include:
Your proposed budget for the project (you can use the given budget template)
what tasks produce costs?
what materials are required?
identify one cost control tool you may use to manage the project costs
identify who will manage the project costs
what approach did you use either the top-down approach or the bottom-up approach?
how did you identify the project costs?
what are the direct and indirect costs?
are there any possible risks that may occur throughout the project?
what is your budget tolerance?
S. No. Item Budgeted Cost Remarks
1 Equipment $ 50,000.00 the cost of equipment may vary.
2 DELL R910 X 2 $ 45,000.00 the cost of it may vary.
3 EMC Clarion CX700 $ 60,000.00 the cost of it may vary.
4 Cabling CAT 6A / electrical $ 70,000.00 the cost of it may vary.
5 Fiber SAN switches $ 25,000.00 the cost of it may vary.
6 Human resources $ 60,000.00 the cost of it may vary.
7 Service Cost $ 40,000.00 the cost of it may vary.
8 Software $ 65,000.00 the cost of it may vary.
9 Fees and Charges $ 15,000.00 the cost of it may vary.
Total Budget $ 430,000.00
Here, the required expenses for the infrastructure are equipment, DELL R910 X 2, EMC Clarion CX700, Cabling CAT 6A / electrical, Fiber SAN switches, Human resources, service cost, software, fees, and other charges. The estimated budget costs $430000 under which all of the pieces of equipment and other charges are included. The project manager and the respective stakeholders made the budget plan and the budget control plan. We figure out the estimated costs through market research or by the current market prices. There could be a possible risk of the budget might get affected a little and give unfavorable results. The prices of the required items can change and may impact the whole budget. There is a very important need to maintain a budget tolerance plan to mitigate any further risks. Our budget tolerance would be $20000. Under this, we can bear or extend the budget if required.
Before you could conduct your project your project sponsor (CEO) has asked you to explain the strategies you will be employing to manage costs and processes for reviewing cost against the expected outcomes.
Write a report to your CEO, explain the following:
a. Strategies for managing costs and monitoring actual expenditure against budget
b. Budget contingency measures for unexpected expenses
c. Processes you will use to review cost against project outcomes.
Strategies for managing costs and monitoring actual expenditure against budget
By establishing an actual position – all organization follows some kind of accounting system which aids in recording the income and expenditure of their organization. The budget could be identified by some sort of code made for the budget which depends upon the type of system, an organization is using. Income and expenditure will be recorded against the said budget code. It enables budget holders in identifying the actual position at a given point in time (Parker et al.,2015).
2. By comparing actual budget with estimated budget-
Gathered data will be compared with the budgeted data which was set at the beginning of the year. There would be a simple comparison, which implies if the estimated data matches the actual data or not. If there comes a difference then it will be termed variance which is an important term in the process of budgetary control.
Calculation of Variances
The template given above can tell the calculation of variance which is done by subtracting the estimated data from actual data.
4. Establishing Reasons for Variances
It is important to find out the reasons behind the difference that occurred for effective budgetary control. For taking appropriate actions and implementing them, the reason should be clear behind the variances. The variance can be both positive and negative depending upon the prevailing situation.
5. Taking required Actions
For controlling the budget and for maintaining an area of improvement it is important to take required actions as soon as possible. Some of the actions that can be taken into consideration and implemented-
Ceasing or reducing services
Reducing or halting expenditure in areas where expenditures can be controlled.
By increasing income
Redefining eligibility criteria
Making and using contingency funds
Changing the service nature and the way it is delivered
Delaying in activities (Balogun et al.,2015).
Budget contingency measures for unexpected expenses
Maintaining an emergency fund could be the best possible solution for meeting unexpected expenses. Saving a part of revenue timely will help in maintaining the contingency fund (De Marco et al.,2016). Creating a monthly budget will also help in preparing a contingency plan for irregular or unexpected expenses. It is important to have financial aid and backup for any of the plans made. Instead of pulling money at the last moment, budgeting would aid in handling all the expenses. Cutting unwanted expenses and expending income wisely would help the case. Maintaining a good budget and sticking to it will help the organization to be focused on the available amount of money, so that organization can achieve the set target goals promptly (Hosseini et al.,2020).
Processes used for reviewing cost against project outcomes.
1. Project Resource Planning
To identify the required essential resources for executing or implementing the project and make it completes. This process is known as project resource planning (Monk, et al.,2015).
2. Cost Estimation
Quantification of costs that is associated with the given required resources for executing the project. This process is called cost estimation.
3. Cost Budgeting
This process can be termed as the prediction or estimating of the costs that will be incurred in the given project. Allocation of costs according to the items required like an individual task or module for a given time period. It also consists of contingencies reserves which are allocated for managing unexpected expenses.
4. Cost Control
To measure variances of cost from within and take corrective measures like increasing the allocated budget or reducing work scope for correcting the gap, the process of cost control will be used (Eriksson, et al., 2015).
During the project the following changes were made to the Project, which resulted in cost variation in certain areas.
One of the critical staffs who is responsible for testing the project after implementation, has given 1 week notice for resignation, you hired 2 additional casual staff to complete the project testing, which resulted in additional staff expense of $8,000.
Due to non-availability of certain hardware, you had to source latest hardware form the market which resulted in an increase of $10,000.
The supplier had a special offer and bundled few essential software for free resulting in a saving of $3000.
a. Use appropriate cost analysis method to identify the cost variations in the given budget variation template.
S. No. Item Budgeted Cost Actual Variance Favorable/Unfavorable Remarks
1 Equipment $ 50,000.00 $ 60,000.00 -$ 10,000.00 unfavorable due to non-availability of certain hardware, there is an increase in the cost of $10000.
2 DELL R910 X 2 $ 45,000.00 $ 45,000.00 favorable it reflects a favorable cost and falls under the budget.
3 EMC Clarion CX700 $ 60,000.00 $ 60,000.00 favorable it reflects a favorable cost and falls under the budget.
4 Cabling CAT 6A / electrical $ 70,000.00 $ 70,000.00 favorable it reflects a favorable cost and falls under the budget.
5 Fiber SAN switches $ 25,000.00 $ 25,000.00 favorable it reflects a favorable cost and falls under the budget.
6 Human resources $ 60,000.00 $ 68,000.00 -$ 80,000.00 unfavorable additional staff hired for $8000
7 Service Cost $ 40,000.00 $ 40,000.00 favorable it reflects a favorable cost and falls under the budget.
8 Software $ 65,000.00 $ 62,000.00 $ 3,000.00 favorable there was a free offer available through which we saved $3000.
9 Fees and Charges $ 15,000.00 $ 15,000.00 favorable it reflects a favorable cost and falls under the budget.
$ 430,000.00 $ 445,000.00 unfavorable
Total $ 430,000.00 $ 445,000.00 unfavorable it reflects an unfavorable balance of 15000
Since your project is project is completed, write a project completion report to your Project sponsors with the following information:
1. Provide a brief explanation on the variation of estimated costs vs. actual costs
2. Your review on the project outcomes (Is the project successful?)
3. Brief review of what cost management issues where identified and what improvements you will suggest to improve similar project cost management in the future.
a. The method used for a cost analysis for finding variations in cost here would be the expert judgment method. This method is guided by historical information which gives them valuable information about the market and the required details from the projects that have already been there. It can also be used for determining if there is a chance to combine the estimation methods and the process of reconciliation between them.
The estimated costs can be defined as a type of prediction whereas actual costs are the real costs that are ready to be charged. For getting an estimate, we have to find out the difference between the actual cost and an estimated cost by subtracting both of them. Here, the estimated cost for some of the items is different in comparison to the actual cost. Like, due to the non-available of staff, the organization had to hire extra employees which lead to an additional charge of $8000. Also, due to the non-availability of specific hardware, there were increased expenses which cost $ 10000. There was a saving of $3000 on getting a free supply of certain software.
2. No, the budget plan was not successful. As it exceeds the estimated budget by $15000. The actual budget reflects $ 445000 whereas the estimated budget made by the organization reflects $430000 which shows a difference of $15000. For this, budget tolerance will be used to settle the extra expenses incurred.
3. The issues faced in cost management faced by the organization identified are short-term focus over the planning of long-term. There reflect limitations in showing analytical potential and the decision-making process. Management accountability was limited, and the budget plan could be more flexible.
The budget plan should be even more flexible. Proper market research should be done before making any budget. Cost analysis methods should be used properly. Loans could be taken to meet the expenses.
Balogun, A., Mamidu, A. I., & Owuze, C. A. (2015). Budgetary control and organizational performance. Journal of Education Research in Natural and Sosial Sciences (JERNASS) Vol, (1).
De Marco, A., Rafele, C., & Thaheem, M. J. (2016). Dynamic management of risk contingency in complex design-build projects. Journal of Construction Engineering and Management, 142(2), 04015080.
Eriksson, K., Johanson, J., Majkgård, A., & Sharma, D. D. (2015). Experiential knowledge and cost in the internationalization process. In Knowledge, networks and power (pp. 41-63). Palgrave Macmillan, London.
Hoseini, E., Van Veen, P., Bosch-Rekveldt, M., & Hertogh, M. (2020). Cost performance and cost contingency during project execution: Comparing client and contractor perspectives. Journal of Management in Engineering, 36(4), 05020006.
Mok, K. Y., Shen, G. Q., & Yang, J. (2015). Stakeholder management studies in mega construction projects: A review and future directions. International journal of project management, 33(2), 446-457.
Parker, D. W., Parsons, N., & Isharyanto, F. (2015). Inclusion of strategic management theories to project management. International Journal of Managing Projects in Business.