Budget for Project: Report

Introduction

LRH Products is preparing to attend a major trade show event in Sacramento, CA. In order to attend the trade show various activities should be incorporated which is considered as individual tasks of a project. The activities include stocking up the collaterals, staffing the sales people, transportation etc. The project starts before ten weeks and so all the activities should be planned. In addition, adequate budget allocation is required. The report is about various ways of determining the budget for the individual tasks and the pros and cons of each tool.

Task budgets for a project a general overview

There are mainly two methods for determining the individual task budget of a project; mainly top down method and bottom up method. The most traditional way is bottom up method Top down approach came into existence during 1990s. Both the top down and bottom up approach have their own advantages and disadvantages.

Top down method

In this method the total project budget or higher level task is reviewed in the first step. In the second step, the scope of individual task is reviewed based upon the importance of individual task and the total budget is allocated to individual task. When the company offers a certain amount of money at the beginning of a project then this type of method is used.

Advantages and disadvantages

Thus as budget is allocated based on the scope of the individual tasks, it has an advantage of controling the cost and reducing excessive spending. There is also a sense of commitment, ownership and support from the part of the top-level managers as they are responsible for preparing it. As the budget allocation is based on the initial sum of money allocated, it may be considered as a drawback of this method as the total project budget may not be realistic. As the top-level managers prepare the project budget, there may be a feeling among the low-level managers that they are not considered in the project budget, which may de-motivate them. In addition, there may be conflicting relations between the functional departments. The other drawback is that the top down approach will be a failure if the top-level managers are not experienced and knowledgeable.

Bottom up or cost aggregation method

In this approach, the individual cost for labor, materials, and other resources is determined in the first step. In the next step, all individual task cost is totalled to establish the total cost of the entire project. Therefore, a detailed work breakdown structure with different tasks, sub tasks, work package is required for bottom up budgeting. Here the individual concerned with the project is consulted to estimate the cost of each task. (Finance Info, 2009).

Advantages and disadvantages

Sufficient funds for each task are one main advantage of this method. In case of small projects, the cost estimation would be more accurate. This also may be the drawback as the individual concerned may be overstating the actual requirements thus leading to surplus spending. The individual managers may tend to ask more funding for the project than the actual requirements. Another limitation is that drawing up the complete list of task may be difficult. Sometimes we may ignore some steps, which may cause problems to the estimation of the budget. (Venkataraman, & Pinto, 2008, p. 86).

Coming back to the case, as the company has allocated certain amount for the trade show, bottom up approach is suitable for the allocation as it helps to fill the budget with individual tasks if there is no other constraint.

Project managers role in determining the task budget

The success of the project depends upon the experience and judgment of the project manager. The project manager plays different roles during a project. One of the important tasks of a project manager is to prepare the project budget. As the project manager is responsible for determining all the tasks of a project and its scope, it would be easy for him to determine the cost. If the top down approach is used the project manager has to determine the scope of individual tasks and then allocate the whole budget to individual tasks. If bottom up approach is used, the project manager should estimate the individual task budget and prepare the overall budget. (Bushman, 2009). In addition, it is the responsibility of the project manager to analyze whether the cost of the project is running over or below the project budget. So if the cost is exceeding the limit, the project manager should take necessary steps to increase the performance while reducing the excessive spending.

Conclusion

A number of issues should be considered while preparing the project budget. Estimation of the individual task cost by the individuals concerned will be the most suitable way of estimating the cost of the project. This helps in estimating a more accurate cost. Efficient control should be exercised in order to control the excess spending of the budget. So while preparing the project budget, each work package in the work breakdown structure should be allocated adequate budget.