Budget Management

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(upbeat music) Let's look at how to budget properly. In these lessons, we'll go over how to determine if you've incorporated an appropriate level of detail into your budget, the difference between budgeting and scope, some basics for controlling your budget, and how you can address issues within your budget. Having the appropriate level of detail in your budget is critical for getting buy-in and approval, tracking expenditures, and providing helpful information for future projects. A large portion of this correct level of detail is determined by organizational culture, policies and procedures. These may be from your organization or the organization that the project is being conducted for. Your project stakeholders will inform you of much of the remaining details as part of your stakeholder identification and analysis. For those actively contributing to or approving budgets, you should be sure to ask about the level of detail required. Some stakeholders may need more detail than others. You may have to create multiple drafts of your budget, with different levels of detail for different audiences. For example, senior management may only require the big picture. They will want to see a roll-up of costs by significant milestones or other criteria. On the other hand, the finance department may require more detail, including all line items and computations. Contracts will have a say in the level of detail, as well, specifying or implying the necessary level of detail. Let's look at two contracts in particular: fixed-price and cost reimbursable. Fixed-price contracts are those where a firm, fixed price is negotiated upfront. It's expected that the agreed upon amount will cover costs and allow for a profit. These contracts will need good budgeting and cost control to keep the project within the bounds set by the contract prices. Failure to include the correct details could mean that significant cost items are forgotten, which will erode the contract's profitability. On the other hand, reimbursable cost contracts allow for the reimbursement of allowed costs while also making room for profit. This means that more detail in the budget may be necessary to ensure that only allowable costs are budgeted. In this case, the seller will need to budget carefully to permit only allowable costs. The buyer will have to monitor invoices to ensure that only allowable costs are included. Regardless of the level of detail, it's critical to include all assumptions made for the budget. The assumptions will help remind everyone of how various costs were calculated or estimated. They will also provide helpful information for those using the budget in the future for historical comparisons and estimates.