![]() Thresholds will be set that trigger the involvement of the sponsor. Typically, the P3 manager is responsible for managing the base costs. The profile of actual expenditure will inevitably be different from planned expenditure. No project, programme or portfolio goes exactly according to plan. The forecast cost is the sum of commitments, accruals, actual expenditure and the estimated cost to complete the remaining work. Actual costs – money that has been paid.Accruals – work partially or fully completed for which payment will be due (in accordance with contract terms).Committed costs – these reflect confirmed orders for future provision of goods and/or services.Many operational financial systems are not ideal for project or programme based accounting. Where P3 managers are reliant upon information from operational systems, the information needs to be checked to ensure that costs have been posted correctly. Actual costs may be recorded directly by the P3 management team, or indirectly through operational finance systems. The ‘accounting control’ step of this procedure should be closely aligned with the ‘administer funding’ step of the funding procedure to ensure that funds are ready to be released to meet the costs incurred.Īs the delivery process gets underway so does accounting control. It allows a cash flow forecast to be developed, and a drawdown of funds to be agreed. This profile can be used in financing and funding. The cumulative expenditure of the budget is often shown as an s-curve. Once the costs and reserves have been approved at the end of the definition process they become the budget. The three major components of a P3 budget are, therefore:Ĭontingency and management reserves will be owned and deployed according to policies set out in the finance management plan. ![]() The greater the chance of unforeseen circumstances, the more management reserve is required so highly innovative work will need a larger management reserve than routine work. Even the best risk management cannot foresee all possible causes of additional cost so a further level of reserve is held by the sponsor to cover unforeseen circumstances. Risk management will identify the potential cost of dealing with known risk and allocate this to a contingency budget. These classifications enable costs to be reported according to any combination of cost type, resource type or section of work. Costs can also be classified in accordance with the work breakdown structure and organisational breakdown structure. If the financial systems allow, it is useful to break costs down into a cost breakdown structure (CBS). ![]() variable direct costs or fixed indirect costs. salaries, fees etc.Īny cost will be a combination of attributes from these pairs, e.g. Variable costs fluctuate with the amount used, e.g. These base costs have two pairs of possible attributes:ĭirect and indirect: costs that are directly attributable to the project, programme or portfolio are direct costs, whereas overheads shared with other parts of the host organisation are indirect.įixed and variable: fixed costs remain the same regardless of how the work proceeds, e.g. capital items such as equipment purchase.expenses such as staff travel and subsistence.consumables such as power or stationery.accommodation and infrastructure such as office rental or support for ICT systems.resources such as staff or contractors.This is typically made up from costs associated with: The base cost is the cost of the work according to the schedule. These are refined as the achievability and desirability of the work are investigated and a detailed understanding of scope, schedule and resource is developed. Initial cost estimates are based on comparative or parametric estimating techniques. It forms the baseline against which the actual expenditure and predicted eventual cost of the work is reported. Typical steps in the budgeting and cost control procedure are shown below:Ī budget identifies the planned expenditure for a project, programme or portfolio. ![]() implement systems to manage income and expenditure.develop budgets and align with funding.determine the income and expenditure profiles for the work.Project, programme and portfolio managementīudgeting and cost control includes the detailed estimation of costs, the setting of agreed budgets, and control of costs against that budget.
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