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Project Management and Budgeting The constructio

The construction of a realistic budget is the outcome of all planning in the project management phase. The more realistic this is, the better planned the project is. Realistic may not mean the actual amount that the project manager needs to do the project. Rather, it represents the amount of funding that the manager needs to carry out a project at any time during the process.

Budgeting is a part of the planning function, and also serves as a control mechanism giving the basis from which actual performance can be compared, measured, explained, and corrected. Control accounts are identified and established, each having component accounts needed for optimum control. The budget should be viewed and used as a program for planned expenditures. When the budget is combined with a schedule it serves as a program of physical completion and provides a most important tool of project management. (Stuckenbruck, 1981, p. 20)

The function of the contingency factor is to determine, in advance, what costs could be changed if needed, and which are fixed. For example, say that raw material costs increase before they can be purchased. This is not an avoidable variance. The contingency factor helps the management team keep the project on track during such difficulties.

The amount of contingency is one measure of risk in a project. Active comparison of cost and time can help the management see problems as they arise, rather than after they have compounded. Management must be made to realize that just because a contingency factor is included does not mean that the project is expected to come out under budget. It is more a case of how much the planning team believes will go wrong before the project is complete.

Risk mitigation through budget comparison is particularly possible when good things happen. As we saw in the earlier example, an adverse price change in a required material simply must be expensed. M

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Project Management and Budgeting The constructio. (1969, December 31). In LotsofEssays.com. Retrieved 02:24, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1705492.html