5.9 Conclusions*

Along with project cost estimation, project budgeting provides the basis for establishing sound project control and profitability. In order to create an accurate budget for a project, we need to understand the difference between various project costs; direct versus indirect, recurring versus nonrecurring, fixed versus variable, and normal versus expedited. Further, because budgeting is truly only as good as the estimating approaches that were used to first estimate costs, a better understanding of some of the key processes for cost estimation, including recurring problems with estimation can help project managers do a better job of evaluating the types of project costs, assign reasonable values to those costs, and use those figures as the starting point for activity-based budgeting. The budget baseline must work in relation to the project schedule, necessitating the creation of a time-phased budget that recognizes the sequencing of project activities and allows the project team to identify their budget, including assessing its status on an ongoing basis. When properly managed, the project budget, working together with the project's schedule, offer the project team the opportunity to apply maximum control to the project.

You have now reached the end of Lesson 4. This lesson offered insight into some of the key processes, problems, and their resolution in the ongoing effort to create better and more accurate budgets that serve as a baseline for efficient project management. You should also have completed your reading assignment as specified on your syllabus. At this time, return to your syllabus and complete any activities for this lesson. In the next lesson, we will examine change control and configuration management.

*Please Note: Portions of this section were adapted from Pinto, J. K. (forthcoming). Project Management: Achieving Competitive Advantage. Upper Saddle River, NJ: Prentice Hall.Used with Permission.

References

• Maher, M. (1997). Cost Accounting: Creating Value for Management. 5th Edition. Chicago, IL: Irwin.
• Merdith and Mantel (2003), Project Management - A Managerial Approach. 5th Edition. New York: John Wiley and Sons, p. 345.
• Pinto, J. K. (forthcoming). Project Management: Achieving Competitive Advantage. Upper Saddle River, NJ: Prentice Hall.