Types of Budgeting and Learning Rate, Essay Example

Project managers coordinate a project using their primary resources, such as their employees, time, computer programs, and of course, money. Budgeting these resources is important and the type of budget depends on the project, type of contract or manager. (Winter) In the current paper, the project manager needs to convince the senior management on utilizing a bottom-up budget instead of a top-down budget. In a top-down budget, the budget totals are taken before spending. This means that, “a total expenditure level is determined before the allocation between main policies or sectors is made (LGungman, 2009)”.  The bottom-up process, on the other hand, is characterized by total expenditure levels being negotiated throughout the contract, meaning there could be new negotiations throughout the contract. (LGungman, 2009)

In order to convince senior management to utilize a bottom-up approach is to convey the details and benefits of a bottom-up approach.  For instance, if the project is a private sector project, it would benefit the organization to use a bottom-up process.  The management can investigate and define the service and the fee that should be attached to the work.  In order to further convince senior management, the costs of the project and the percentage of profit should be established before the fee is negotiated.  In this case, the project manager should define all services, starting with the lowest level in order to obtain the costs of the higher levels services and present the cost to the upper management.   The costs can be calculated using the overhead rate of the company as an indicator.  Using this approach can gain a profile to distribute to the upper management of the targeted amount of profit that can be obtained using the bottom-up approach.  In addition, it can be conveyed that if the client agrees to the fee, the likelihood of the profit is high; whereas, in a top-down approach, it is more an estimate and therefore there is a risk to the amount of profit that will actually be obtained.

Disregarding that the learning rate will most likely inflate the project cost estimates, the other factor that could inflate the project cost is “padding”.  Padding refers to an increase in the cost to the client. There are multiple potential unethical practices that could occur within the project team in regard to cost estimation that can change the after-effects of the practices on the project performance.  It is the project manager’s responsibility to monitor and analyze different aspects of the project in order for padding to not occur.  Ethical practices that can occur within a project are related to the reporting of actual time versus estimated time or time management, cost management, quality management, human resource management

An example of an unethical practice is the actual time the work was completed versus the amount of time billed.  The potential for unethical practices in reporting the actual time for completing a job can alter the estimation of the service being provided.  Therefore, the project manager should compare the actual time of the work for all employees and track the report, as well as report back to the project team.  (Successful Projects, 2013) In addition, if there is unethical practice of time management, this can lead to cost management alterations.  If the time management is incorrect, the time and budget outlined before the project will not run coherently and finish at the estimated date.  Unethical practices for other costs besides time reporting could be billing for instruments or resources that are not project related, or inflating the costs. Furthermore, this directly affects Quality Control or Quality Management.  If the time and costs estimates are inaccurate from the project team, the quality of the work or performance is not realistic an unethical, which can lead to nonconformance’s.  (Rowley, 2012)  The time, cost and quality management therefore can lead to an increase in incohesiveness between the members of the team.  (Rowley, 2012) Overall, ethical practices should be outlined before the project and the team should be aware of the outcome of the project, in regard to success, before the start of the project.

References

Ljungman, G.  (2009).  Top-Down Budgeting-An Instrument to Strengthen Budget Management.

International Monetary Fund.  Fiscal Affairs Department.  WP/09/243.  Pp21.

Wintner, S.L. AIA.   Top-Down/Bottom-Up Project Fee Budeting.  Retrieved on 5/7/13 from: http://www.managementconsultingservices.com/articles/Top-Down%20Fee%20Budgeting.pdf.

Successful Projects.  (2013).  Estimating Time and Cost.  Retrieved on May 7, 2013 from: http://www.successfulprojects.com/PMTopics/TimeMgmt/EstimatingTimeandorCosts/tabid/314/Default.aspx.

Rowley, J.  (2012).  Time Management-Why Padding an Estimate Isn’t Professional.  4SQUAREVIEWS.  Retrieved on May 7, 2012 from: http://4squareviews.com/2012/09/22/time-management-why-padding-an-estimate-isnt-professional/