Project Management – Quiz 6

What is budgeting?
A plan for the costs of project resources
T or F: the higher the budget, the higher the managerial support.
T
Estimating project budgets: on most projects…
Material + labor + equipment + capital + overhead + profits = bid
In other words…
Resources + profits = bid
T or F: the more standardized the project and components, the lower the uncertainty
T
The more experienced the cost estimator, the ________ the uncertainty
Lower
Rules of thumb
• construction cost by square feet
• printing cost by number of pages
• lawn care cost by square feet of lawn
_________ people have some control over the budget
Multiple
T or F: There is less flexibility regarding the estimates of inputs (material and labor)
F: there is MORE flexibility
Types of budgeting
• top-down
• bottom-up
• negotiated
Top-down budgeting
• top managers estimate/decide on the overall budget
• these trickle down through the organization where the estimates are broken down into greater detail at each lower level
• process continues to bottom level
Bottom-up budgeting
• project is broken down into work packages
• low level managers price out each work package
• overhead and profits are added to develop the budget
An Iterative Budgeting Process- Negotiation-in-Action
• most projects use some combination of top-down and bottom-up budgeting
• both are prepared and compared
• any differences are negotiated
Primarily interested in estimating _______ costs
Direct – indirect costs are not a major concern
T or F: inputs from a lot of areas are required to estimate a project
T
How much do most firms add for contingencies?
5-10%
Percentage is called the what?
Learning rate
Other factors
• escalation
• waste
• bad luck
What are the two types of errors?
• random
• bias
What can be done about random errors?
Nothing. They tend to cancel each other