5.6. Issues in Project Development

Developing a project is a complicated and time-consuming process that requires a number of issues be addressed simultaneously. First, we already know that cost estimation is not an easy task, as there are various categories of costs. The project team has to not only determine which categories of costs are relevant and appropriate for the project, but also has to identify the principle cost driver (labor, material, etc.) for each project activity so that a reasonable expense can be charged against that activity. Furthermore, in allocating these resources to the project activity, the project team has to ensure that the task is completed within the time allocated to it by the project schedule. Second, projects are often fraught with risks associated with unexpected and unforeseen events. Hence, the project team has to decide on the amount contingency funds that should be held in reserve which is shown as a separate line item in the project budget. Finally, if the project falls behind schedule, then the project team has to make a decision regarding accelerating (crashing) the project activities which has serious implications for the project budget. In the following sections of this lesson, we will discuss some of these important issues of project budgeting and their ramifications on the overall cost of the project.