Topic 5.4: The project budget
This process is properly know as requirements analysis, although that term can also be applied to the entire WBS / scope definition process (as we have done in this Unit).
In requirements analysis we ask, what do we need in the way of:
We can consult Google, expert stakeholders, or past project reports to get this data.
We can also apply analogous, parametric or other statistical techniques to fine-tune our estimates.
When analysing our labour requirements we also need to understand:
How much each unit of labour costs (for example, $50 per hour)
How many direct hours of labour are required (for example, 5 people x 2 hours each x $50 per hour = $500), and
How long it will take to complete the task (for example, 3 weeks)
Note the difference between labour cost and time to complete.
Just because it takes 10 hours of effort to deliver a task, doesn’t mean you will receive the output exactly 10 hours after work starts.
More often than not, our dependency on other activities (such as staff availability and delivery times) necessitate wait-time in our schedule.
Although the time to complete is not required for our project budget, it is a vital input into our project schedule, which we shall look at shortly.
The total (budgeted) cost of each task is therefore:
Equipment + Materials + Labour + Other Direct Costs
Contingency reserves (which we will introduce in the Unit on Risk) can then be appended to the budget for each task.
Indirect costs and management reserves (also discussed in that Unit) are applied to the overall project budget.
Note, too, that equipment (or other resources) shared over multiple tasks are usually entered as indirect costs.