Process of Budgeting

00:02 The first step of cost planning is identifying all cost generating activities. I'm sure you don't need to be told at this point that if anything is missed, then it will immediately affect the project budget.

00:14 So let's go to the Lamborarri project and have a look at how you could approach this part of the process.

00:20 The best thing to do now is whip out your work breakdown structure and activity list. Let's have a closer look at the three main workstreams we have, shall we? Starting with the showroom preparation stream, we can safely assume that Lamborarri doesn't have a construction team on payroll and will have to hire at least one specialised company.

00:43 You need to negotiate with various vendors and you also need to evaluate if there are any costs that won't be covered by their company.

00:50 Like clearing or prepping the land prior to building.

00:54 You must ask if the company will pay for material costs or will you have to buy your own paint? A detailed contract listing the services the vendor will provide must be drawn up and factored into the project budget along with additional costs that you have identified.

01:11 Regarding car preparation.

01:13 Lambert Rory's core business is producing cars, so there will be no financial payments for the production. However, car costs do need to be documented as the cars still need to be accounted for.

01:26 The way you do this depends on the company.

01:29 Some companies require transactions between departments to be made through intercompany expenses. You need the project sponsor to advise how to fact the cost. Of course, the internal structure of the company plays a big part here, so communicating with the appropriate people is paramount.

01:48 Not only that, but you have to identify all related activities that generate cost delivery, car testing, insurance, things like that.

01:58 Now onto staff preparation.

02:01 Working with the HR department is crucial here.

02:05 You need to establish how many staff members are needed, what jobs they will have, what costs will be incurred for recruitment.

02:13 Will Jamboree use their own HR department or will they pay for services of an HR company? And then you need to consider training.

02:21 Will you train internally or hire a company again? Will you interview and train on site or rent an external training centre? There is plenty to think about here, but if you have built a detailed and extensive activity list, then identifying which ones incur costs should be a lot easier. Bear in mind, however, that the cost planning may bring to light tasks that you did not think of while planning the project schedule.

02:49 All right, now that we have an extensive list of all our activities that will incur costs, it's time to estimate what those costs will be.

02:58 Non straightforward processes can rear their head here.

03:02 Some tasks like buy paint are simple to estimate and task, which you may have estimated during a previous project like using a particular H.R.

03:11 Company can be worked out with little resistance.

03:14 However, with other items, you may have to combine the information you have available with professional estimations from your team.

03:22 Sometimes you have to negotiate with vendors, too.

03:26 No doubt some of these can take days or even weeks if many different people need to be contacted.

03:33 As mentioned, using information from past projects or activities by the organization is a very useful tactic at this stage in particular.

03:42 And of course, don't forget about the optimism, bias and adding buffers. Once all your cost generating activities have their costs estimated it's time to work out when the money needs to be spent and concurrently acquired.

03:59 Use your Gantt-Chart to plan this and then put it all together in your project budget. Which could look something like this.

04:07 It's important to track your actual spending.

04:10 So adding a column for that would make sense.

04:12 But with so many different types of project, there is no one size fits all project. Budget template.

04:20 Check out the course resources for a few more examples to get a better idea.

04:24 But remember, it is the job of the project manager to compile a project budget that works best for their project.

04:32 Resource procurement is one of the more volatile areas of budgeting, as the project manager will be working with external vendors and as a result they will be faced with a greater level of uncertainty.

04:44 Next lesson we're going to talk about what the project manager may be faced with when procuring resources and how they can better prepare themselves.

04:53 See you there.