3 pm3 c_3%20-%20the%20program%20budget

Slide 1

Work Authorization

Cost BudgettingCost Estimation

#3PM3_T_B Planning TimeThe output of the budgeting process is an approved project budget that is allocated to different control accounts within a distributed budgetThe total project budget is flowed down from the contract negotiationManagement and the PM divide up this budget to create a budget structure that defines the total funding available to be spent in the program as the distributed budget.A control account structure is developed based on the work breakdown and organizational breakdown structures.The distributed budget is rationally allocated to the control accounts.Cost Budgetting

#3PM3_T_B Planning TimeThe BudgetThe budget is the amount of funding authorized to complete a chunk of the project scopeThis chunk may be the entire project scope in the SOW and estimate, or a subset of this for example:customer funding may be negotiated in phasesA customer may solicit a proposal for both the R&D and production costs for an innovative, risky product, but only fund the R&D portion until it is evident it will work.management may wish to control the funds at risk at any one timeFor the same project, the customer may fund both phases, but management may only release the R&D portion in order to ensure that the product developed is profitable before authorizing production. The budget is therefore related to the original estimates provided, but not necessarily the same, and usually less. Budget review is essential to:Understand the scope approvedHighlight differences between funds authorized and funds estimated

#3PM3_T_B Planning TimeBudget Sources and StructureThe Budget is provided by company management via the Sponsor teamIt is authorized initially in the Project Charter, with changes introduced via the Integrated Change Control process (Changing the Plan)The budget amount authorized is usually:For customer funded activity, related to the amount agreed to within the proposal/contract negotiation, the Contract Price For internally funded activity, an amount provided by management based on the original estimates provided and available company financingIn both cases, the total budget amount will be allocated for various purposes, among which is covering the costs of performing the project workThis allocation creates a number of budget baselines that comprise the budget structure

#3PM3_T_B Planning Time

Typical Budget Structure

Contract PriceNegotiated Contract CostContract Budget Base (CBB)

Performance MeasurementBaseline (PMB)Distributed Budget

Fee&Profit

Authorized/Non-priced Work(non-negotiated)

Management Reserve

Undistributed Budget Control AccountsPlanning WBSWork PackagesPlanning Packages

Contract Baselines

Budget Baselines represent yardsticks by which the cost performance of different levels in the company can be measuredDifferent layers of management remove the pieces of the budget pie for which they are responsible, and measure lower layers based on what is left


Whos budget? Who gets measured at what baseline?



Fee&Profit


Management Reserve


Contract Baselines

Business Management Corporate (P&L)Resource Management - Sponsor (Cost Centre)Project Management Control Account Management


The Corporate budget



Fee&Profit


Management Reserve


The Contract Price is the anticipated total amount the seller will receive. The total anticipated project cost or Contract Budget Base (CBB) is determined after negotiations by removing the profit.Occasionally, some details remain un-negotiated, but have some provisional funding allocated to allow the project to proceed.

Once negotiated, this will be incorporated into the lower level budgets but, in the interim, the CBB will be reduced by this amount to give the funds that can be released to the team This is the Negotiated Contract Cost, and what the organization calls the budget


The Sponsors budget



Fee&Profit


Management Reserve


The Sponsor team will consider the risks and assumptions highlighted within the Project Charter, and will retain a Management Reserve to allow for funding of unanticipated occurrences during the project (eg. Fires, economic issues, etc.)




Fee&Profit


Management Reserve


The remaining budget is under the PMs control, and forms the project Performance Management Baseline (PMB)The Project Manager will decide how much of the PMB to retain as Undistributed Budget to deal with short term issues and performance variation, and how much to distributeOf the distributed amount, some will be distributed to the team to perform work against Work Packages, and some will be allocated to future work that is not yet authorized, but is kept in Planning PackagesThe Project Managers Budget

#3PM3_T_B Planning TimeUndistributed BudgetManagement ReservePart of cost baselineNot distributed or included in performance managementTo address minor and/or expected issues during project execution eg. Underestimates, lengthy queue time, To address major unforeseen events eg. Laboratory catches on fire; vendor goes out of businessReserves as contingency for particular work Not associated with particular work contentControlled by Control Account Manager/Project ManagerControlled by Senior Management/Project Manager

Project Budget ReservesReserves are a means of mitigating program risks that will be discussed in Week 6Undistributed budget is to mitigate Known UnknownsManagement Reserve is to mitigate Unknown Unknowns


The Project Teams Budget



Fee&Profit


Management Reserve


Within the Distributed Budget, the Project Manager allocates budget:to Control Accounts for the near term execution of Work PackagesPlanning Packages for purposes of long term planning and resource forecastingAt the Control Accounts, control over the budget passes to the Control Account Managers (CAMs)

#3PM3_T_B Planning TimeWork PackagePlanning PackageControlled by one function in organizationMay contain the work of many functionsSelected to be completed over a manageable time periodMay be very lengthy, especially if forecast far in the futureControlled by Control Account ManagerControlled by Project ManagerCreated to support the allocated and authorization of workCreated to allow long term budget and resource forecasting

Work vs. Planning Packages

Time Now6 MonthsTime

Control Account No. 1Control Account No. 6Control Account No. 2Control Account No. 8Control Account No. 3Control Account No. 5Work PackagesPlanning PackagePlanning PackagePlanning PackageWork PackagesPlanning PackageWork Packages


Control AccountBudgets

Work Packages

Apportioned Effort

Over Target Baseline(OTB) (if Applicable)

Contract Price

MeasuredEffort (Discrete)

PMB = UB + FCOM + DBTAB = CBB + OTBCBB = MR + PMB

Total AllocatedBudget (TAB)

Fee

Contract BudgetBase (CBB)

UndistributedBudget (UB)

DistributedBudget (DB)

Facility Cost ofMoney (FCOM)

Level of Effort

Planning Packages

SummaryControl Accounts

Performance MeasurementBaseline (PMB)

ManagementReserve (MR)

NegotiatedContract Cost

Authorized/Undefinitized WorkA Typical Budget StructureThe program and senior management will establish a budget flowdown model that incorporates various baselines and reserves in order to:Authorize what can be spentEstablish who controls budgets at each levelSet up a structure against which performance can be measure

#3PM3_T_B Planning Time13The Total Allocated Budget (TAB) has a direct relationship to the Contract Budget Base (CBB). The figure above shows the relationship in a flow chart format, as well as the relationship of the TAB to the Performance Measurement Baseline (PMB) and Management Reserve (MR).

Rolling Wave Definition

Near term/known events scheduled and resource loaded in detail to activity levelLonger term activities scheduled at increasingly reduced levels of detailDepending on risk reduction philosophy, these may either have no budget/ resources allocated, or may be lumped as Planning Packages


3 pm3 c_3%20-%20the%20program%20budget

Business

Transcript of 3 pm3 c_3%20-%20the%20program%20budget