General |
1. |
Follow the basic principles as set out in "Principles of Financial Management" (compiled by the Department of Finances and available from them). |
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Planning |
1. |
Draw up a weekly or monthly budget, depending on the duration of the project. |
2. |
Take the following types of costs into account: |
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a) |
Direct costs |
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* |
Unavoidable expenses – varies according to volume of work |
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* |
E.g. labour, material equipment |
b) |
Indirect costs |
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* |
Cannot be calculated directly – varies over time |
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* |
E.g. overhead costs determined by company (probably per project) |
c) |
Profit: Percentage (%) usually determined by company policy |
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3. |
The total budget is mentioned under "Budget at Completion" (BAC). |
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Execution and monitoring |
1. |
Keep ACCURATE records of each transaction, expenditure, etc. |
2. |
Regularly update the budget/expenditure statement. |
3. |
Check information against information on financial system. |
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Ways to monitor costs |
1. |
There are two ways to monitor costs: |
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a) |
Per task or deliverable (activity-based costing) |
b) |
By comparing the actual expenditure with the planned
expenditure at any given point (good indication of soundnessf project). |
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2. |
To execute 1.b): |
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a) |
Determine the following: |
|
What |
Abbreviation |
Description |
Budgeted costs of scheduled work |
BCWS |
According to the planning, what should have been spent by now? |
Budgeted costs of work done |
BCWP |
What % of each activity has been completed? Determine the same % of the costs. |
Actual costs of work done |
ACWP |
Actual expenditure to date |
Budgeted costs at completion |
BAC |
According to the planning, what will the project costs amount to? |
|
|
b) |
Determine the deviation in terms of costs (CV) |
|
|
CV |
= |
BCWP |
- |
ACWP |
x |
100 |
------------------ |
----------- |
BCWP |
1 |
CV |
> 0 |
Spend less than budgeted amount |
CV |
< 0 |
Overspend |
|
|
c) |
Determine the deviation in terms of the schedule (SV) |
|
|
SV |
= |
BCWP |
- |
BCWS |
x |
100 |
------------------ |
----------- |
BCWS |
1 |
SV |
> 0 |
Ahead of schedule |
SV |
< 0 |
Behind schedule |
|
|
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Determine Cost Performance |
1. |
What is the Cost performance index"?: It indicates how efficiently the project team has turned cost into progress to date. |
2. |
To calculate : CPI = BCWP / ACWP |
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Determine estimation |
1. |
Estimate to completion = BAC - BCWP |
2. |
Estimate at completion = ETC - ACWP |
NB! |
If a graph is drawn that indicates the difference between the
budgeted and actual expenditure, the deviation should decrease as the
project progresses. |
