Planning the Project Budget
Last updated: 2022-03-20
Following the project planning process, we continue with planning the project budget, sometimes called project budgeting, in 3 steps.
Project Planning Process
The three steps are: finalizing the resource plan in form of manpower
histograms and similar plans for tools and material, deriving the cost
plan and determining the plan of how the project gets paid for.
Step 8 – Resource Plan
Now, we combine all this information with our project schedule, i.e.
network diagram and Gantt chart. To each work package we assign the
resources in terms of
- manpower: how many people, on what level of skills, with which work load
- material: how much of what kind of stuff
- tools: which machinery with what characteristics.
immediate result of assigning resources to all the work packages will
be the resource plan which basically shows when we need whom, what
material, and what tools. Another result we obtain is the so-called manpower histogram.
It focuses on people only: how many people do we need in which area of
skills, on what level of skills, and on what level of work load.
The following diagram shows an example of a manpower histogram of a project in which we need the contribution of electrical engineers. The horizontal line reflects the time line in weeks (of 40 working hours, each; work load: 100%), the vertical line indicates how many engineers are supposed to work on that project in which week, e.g. 40 engineers in weeks 32, 33 and 34.
We obtain similar diagrams for all other skill areas and levels and even for the tools and machines we need to use.
Step 9 – Cost Plan
If we now only add the information of hourly rates for the people
working in our project, for the tools we need, and the cost of material,
we immediately get the cost plan for the project. The cost plan shows
the accumulated cost or planned cost of the project with reference to the project time line.
Step 10 – Payment Plan
With a finalized cost plan, we know when we need to provide how much
money in order to cover those costs. Since we usually have a
customer-contractor relationship, coverage of the cost is taken care of
by customer’s payment. So, from the accumulated cost plan, we can derive
a payment plan. From the customer’s perspective, this payment
plan translates into the project financing plan: On basis of the payment
plan, the customer is able to determine the overall project budget, and
what portions of that budget are needed at what time to fulfill the
Project Cost and Payment Plan
In case the project is about developing, manufacturing, and selling a
product, the situation is similar: then, we usually need a sales plan
instead of the payment plan.
If the project is company or
organization internal, then we could interpret the situation as being an
informal customer-contractor relationship. I.e., the informal customer
could be the CEO of that company or organization, and the informal
contractor’s role could be plaid by one special department.
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