2024

PARTICIPATE IN THE ESTIMATION AND PREPARATION OF COST

BUDGETS FOR AN ELEMENT OF WORK AND MONITOR AND
CONTROL ACTUAL COST AGAINST BUDGET
UNIT STANDARD: 10134
NQF LEVEL: 4
CREDITS: 6
NOTIONAL HOURS: 60

LEARNER GUIDE

Name
Contact Address
Telephone (H)
Telephone (W)
Facsimile
Cellular
E-mail
Table of Contents
HOW TO USE THIS GUIDE ..................................................................................................... 3
ICONS ...................................................................................................................................... 3
PROGRAMME OVERVIEW ..................................................................................................... 3
PURPOSE................................................................................................................................ 4
LEARNING ASSUMPTIONS .................................................................................................... 4
HOW YOU WILL LEARN ......................................................................................................... 4
HOW YOU WILL BE ASSESSED ............................................................................................ 4
FORMATIVE ASSESSMENT ................................................................................................... 4
SUMMATIVE ASSESSMENT .................................................................................................. 5
SECTION 1: INTRODUCTION TO PROJECT BUDGETING .................................................................. 8
1.1 INTRODUCTION ................................................................................................................ 9
1.2 COSTING ......................................................................................................................... 10
1.3 COST ELEMENTS ........................................................................................................... 11
1.4 UNIT COSTING................................................................................................................ 12
1.5 DETERMINING RESOURCE REQUIREMENTS ............................................................. 14
1.6 FIXED COSTS AND VARIABLE COSTS ......................................................................... 15
1.7 PROJECT SCOPE STATEMENT .................................................................................... 16
SECTION 2: PREPARATION OF A PROJECT COST BUDGET ......................................................... 18
2.1 INTRODUCTION .............................................................................................................. 19
2.1 THE BUDGET PREPARATION PROCESS ..................................................................... 19
2.2 BUDGETING ASSUMPTIONS ......................................................................................... 21
2.3 BUDGETING TECHNIQUES ........................................................................................... 24
2.4 PROJECT BUDGET APPROVAL .................................................................................... 28
SECTION 3: PROJECT TEMPLATES .................................................................................................. 31
3.1 INTRODUCTION .............................................................................................................. 32
3.2 DEFINITION OF BUDGETARY CONTROL ..................................................................... 32
3.3 COMMUNICATING THE BUDGET .................................................................................. 33
3.4 BUDGET VARIANCES..................................................................................................... 34
3.5 CORRECTIVE ACTION ................................................................................................... 37
3.6 CONTROLLING PROJECT CASHFLOW ........................................................................ 38
3.7 MAINTAINING FINANCIAL RECORDS ........................................................................... 39

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HOW TO USE THIS GUIDE

This workbook belongs to you. It is designed to serve as a guide for the duration of your training
programme and as a resource for after the time. It contains readings, activities, and application
aids that will assist you in developing the knowledge and skills stipulated in the specific outcomes
and assessment criteria. Follow along in the guide as the facilitator takes you through the
material, and feel free to make notes and diagrams that will help you to clarify or retain
information. Jot down things that work well or ideas that come from the group. Also, note any
points you would like to explore further. Participate actively in the skill practice activities, as they
will give you an opportunity to gain insights from other people’s experiences and to practice the
skills. Do not forget to share your own experiences so that others can learn from you too.

ICONS

For ease of reference, an icon will indicate different activities. The following icons indicate
different activities in the manual.

Outcomes Individual activity

Assessment Criteria Note!

Practical activity Reflection

Notes (Blank) Group Discussion

Definition Summaries

Additional Reading Example

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PROGRAMME OVERVIEW

PURPOSE

This unit standard is for learners who will be involved in project management teams or involved in
building small project management teams. These projects may be technical projects, business
projects or developmental projects and will cut across a range of economic sectors. This standard
will also add value to learners who are running their own business and recognise that project
management forms an integral component of any business.
The qualifying learner is capable of:

 Identifying elements and resources to be costed through interpreting the project scope
statement, work breakdown structure and other project data.
 Participating in the preparation and production of a cost budget.
 Contributing to the monitoring and controlling of cost budget performance by maintaining
records and communicating

LEARNING ASSUMPTIONS
 Learners accessing this qualification will have demonstrated competence in mathematics
and communication skills at NQF level 3 or equivalent.
 Learners accessing this qualification will have demonstrated competence in computer
literacy and applicable software at NQF level 3 or equivalent.

HOW YOU WILL LEARN

The programme methodology includes facilitator presentations, readings, individual activities,

group discussions, and skill application exercises.

HOW YOU WILL BE ASSESSED

This programme has been aligned to registered unit standards. You will be assessed against the
outcomes of the unit standards by completing a knowledge assignment that covers the essential
embedded knowledge stipulated in the unit standards. When you are assessed as competent
against the unit standards, you will receive a certificate of competence and be awarded 6 credits
towards a National Qualification.

FORMATIVE ASSESSMENT
In each Learner Guide, several activities are spaced within the content to assist you in
understanding the material through application. Activities in the learner manual are not for
assessments. Formative assessments are in a separate module written formative assessment.

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Please make sure that you complete ALL activities in the Formative Assessment Guide, Formative
activities must be completed at the end of each section.

SUMMATIVE ASSESSMENT
You will be required to complete a Portfolio of Evidence for summative assessment purposes. A
portfolio is a collection of different types of evidence relating to the work being assessed. It can
include a variety of work samples.

The Portfolio Guide will assist you in identifying the portfolio and evidence requirements for final
assessment purposes. You will be required to complete Portfolio activities on your own time, using
real life projects in your workplace environment in preparing evidence towards your portfolio.

Being Declared Competent Entails:

Competence is the ability to perform whole work roles, to the standards expected in employment,
in a real working environment.

There are three levels of competence:

 Foundational competence: an understanding of what you do and why.

 Practical competence: the ability to perform a set of tasks in an authentic context.

 Reflexive competence: the ability to adapt to changed circumstances appropriately and

responsibly, and to explain the reason behind the action.

To receive a certificate of competence and be awarded credits, you are required to provide
evidence of your competence by compiling a portfolio of evidence, which will be assessed by a
Services SETA accredited assessor.

You Have to Submit a Portfolio of Evidence

A portfolio of evidence is a structured collection of evidence that reflects your efforts, progress and
achievement in a specific learning area, and demonstrates your competence.

The Assessment of Your Competence

Assessment of competence is a process of making judgments about an individual's competence
through matching evidence collected to the appropriate national standards.
The evidence in your portfolio should closely reflect the outcomes and assessment criteria of the
unit standards of the learning programme for which you are being assessed. To determine a
candidate’s knowledge and ability to apply the skills before and during the learning programme,

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formative assessments are done to determine the learner’s progress towards full competence.
This normally guides the learner towards a successful summative (final) assessment to which both
the assessor and the candidate only agree when they both feel the candidate is ready.

Should it happen that a candidate is deemed not yet competent upon a summative assessment,
that candidate will be allowed to be re-assessed. The candidate can, however, only be allowed two
reassessments.

When learners have to undergo re-assessment, the following conditions will apply:

 Specific feedback will be given so that candidates can concentrate on only those areas in
which they were assessed as not yet competent.

 Re-assessment will take place in the same situation or context and under the same
conditions as the original assessment.

 Only the specific outcomes that were not achieved will be re-assessed.

 Candidates who are repeatedly unsuccessful will be given guidance on other possible and
more suitable learning avenues.

In order for your assessor to assess your competence, your portfolio should provide evidence of
both your knowledge and skills, and of how you applied your knowledge and skills in a variety of
contexts.

This Candidate’s Assessment Portfolio directs you in the activities that need to be completed so
that your competence can be assessed and so that you can be awarded the credits attached to
the programme.

NOTE YOUR POE GUIDE HAS MORE INFORMATION ON THE ASSESSMENT PROCESS

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Assessment Process Flow

C Assessment Plan Observation

A agreed by candidate Knowledge conducted as per
N & completed by the Questionnaire the Assessment
D assessor before the conducted as per the Plan
I actual assessment Assessment Plan
D
A
T
E
A
S Portfolio of
S Evidence Portfolio of
A detailed Assessor E submitted to Evidence
Report compiled & S service provider compiled as per
forwarded for as per the the Assessment
S
Moderation M Assessment Plan Plan
E
N
T

Feedback Report
Completed by Appeal form
Assessment Assessor &
completed by Record of
Results individual
the candidate in Learning
Moderated feedback given
the event of Updated
to the candidate
dispute

Completed Assessor S
Report / Moderator Report / E All records & Action Plan
Record of Learning T evidence Completed by
filed Assessor
A

Certificate of Register
Competencies candidates on the
Approval & Learner Record
issued to
Certification Database
successful
obtained candidates

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SECTION 1: INTRODUCTION TO PROJECT
BUDGETING

Specific Outcome
On completion of this section you will be able to identify elements and
resources to be coasted through interpreting the project

Assessment Criteria
This specific outcome shall cover:
 The work elements are identified and extracted from data (SO 1, AC 1)
 The elements of cost are identified and explained. (SO 1, AC 2)
 Interpretation of the scope statement is done using established
methods and procedures to ensure validity. (SO 1, AC 3)

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1.1 INTRODUCTION
A project budget is one of the critical tool that must be prepared during project planning. Having a
thorough budget the project manager can make better decisions regarding the constraints (time,
cost and scope) to successfully complete the project while satisfying stakeholders’ needs and
understanding the implications on the project schedule and resource allocation.

Is the total amount of monetary resources that are allocated for

particular goals and objectives of the project for a specific period of
time. The purpose of project budget management is to estimate and
Project Budget control project costs within the approved budget and to achieve the
stated goals of the project.

After the project budget has been prepared, it must be managed. Project budget management is a
process of formally identifying, approving and paying the costs or expenses incurred on the
project. Project budget management involves using purchase order forms to state each set of
project expenses, such as training, consulting services, equipment and material cost, etc. Usually
in the process, the project manager plays the role of “Approver” (a person who approves a budget
for a project) and the finance unit (e.g. Finance Department) acts as a “Recorder” (an
organisational unit that tracks and audits budgeting activities and reports to the project manager).

Importance of project cost planning (budgeting)

The following are some of the key reasons for preparing a budget;
 Enhanced managerial perspective-In preparing a budget, project managers and project
team members are forced to make estimates of future economic conditions, including
costs, and the ability of the project meeting its objectives.

 Early warning system -If a budget is to reveal expected results of future project
operations, then management is forewarned of financial problems.

 Coordination of activities -Preparing a budget provides management with an opportunity

to co-ordinate the activities of various divisions or teams in a project.

 Performance evaluation -Budgets provide a yardstick against which the project can
compare its actual performance and its cost baseline per given time frames.

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1.2 COSTING
Costing is the process of determining and accumulating the cost of product or activity. It is a
process of accounting for the incurrence and the control of cost. It also covers classification,
analysis, and interpretation of cost.

Work elements or work package

In order to cost a project, it is crucial to identify the various work packages involved in the project.
The work packages are a useful guide when costing a project. The cost elements of each work
package must be estimated to determine the cost of the project. Below is a definition of a work
package.

“A Work Package itself is simply an instruction pack. It tells the Team Manager what is to be built
and how it is to be done. It will include things such as progress reporting requirements and any
constraints on how the work is done.” - Inspirandum 2008

The key rules in developing work Packages are:

 The 4% rule: Which means that the work package consists of 4% of the total size of the
project.
 The 40 hour rule: Which means that the work package should consist of no more (and not
a lot less) than 40 hours.
Below is an illustration of a work package.

Source:
http://www.inspirandum.com/Article%20PRINCE2%20stages%20teams%20and%20work%20pac
kages.htm

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1.3 COST ELEMENTS

When creating a project budget it is important to understand the various cost elements. These
elements of cost are:
 Materials
 Labour and
 Expenses
The above elements of cost are analysed in the chart given below:

1. Materials:
The substances from which the products are made are known as materials. They can be direct or
indirect.
I. Direct materials: Direct materials are those materials which form part of a finished
product. These materials cost can be conveniently identified with and allocated to a
particular product, process or job. It is a part of a prime cost, e.g. Timber in furniture
making, cloth the dress making, leather in shoe making, bricks in building a house etc.
II. Indirect materials: Indirect materials are those materials which do not form a part of a
financial product. Cost of indirect materials cannot be identified with and allocated but can
be apportioned to a particular product, process or job, e.g Cotton waste, lubricant, grease

2. Labour:
For conversion of raw materials into finished product human effort is needed. Such human effort is
called labour. Labour can be direct as well as indirect.
I. Direct Labour: Direct labour is that labour which is directly engaged in the production of
goods or services. The wages of such labour are known as direct wages. These labour

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 cost or direct wages can be identified with and allocated to a particular product, process or
job. It is a part of the prime cost, e.g. Wages of spinners and weavers in a textiles factory.

II. Indirect labour: Indirect labour is that labour which is not directly engaged in production of
goods or services. In indirectly helps the direct labour engaged in production. The wages
paid for indirect labour is known as indirect wages. Indirect wages cannot be identified with
and allocated but can be apportioned to a particular product, process or job e.g. wages of
machines, supervisors, watchman, sweepers, time-keeper.

3. Expenses:
Expenses may be direct expenses or indirect expenses.
I. Direct Expenses: All expenses (other than direct material cost or direct wages) that are
directly charged to production are direct expenses. It is parts of the prime cost e.g. excise duty,
royalty on production, cost of special drawings and designs, architect’s fees or equipment for a
particular job etc.
II. Indirect Expenses: Expense (other than indirect material and indirect labour) that are not
directly charged to production are indirect expenses. It can be classified as follows.
a) Factory overheads: These are also called manufacturing overhead or works overhead or
work on cost. Factory overheads cover all indirect expenses incurred from the stage of raw
materials to finished goods. It includes indirect material, indirect wages and indirect
expenses e.g. factory rent, supervisors salary, power and fuel, heating and lighting,
depreciation of factory building etc.
b) Administrative overheads: These are expenses incurred for running administrative office
e.g. office rent and salaries, printing and stationary, legal expenses, telephone expenses
etc.
c) Selling overheads: These are expenses incurred for actual sales and promotion of sales
e.g. salaries of sales manager, commission, travelling expenses of salesman and
Promotion expenses like advertising and publicity, after sales service etc.
d) Distribution overheads: These are expenses concerned with the packing and delivery of
goods to the customers e.g. packing charges, warehouse expenses, depreciation of
delivery van, loading charges.

1.4 UNIT COSTING

To determine the cost of a resource, it is important to know the unit cost. According to the
Wikipedia unit cost is;

The unit cost of a product is the cost per standard unit supplied, which may be a single sample or
a container of a given number. When purchasing more than a single unit, the total cost will

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increase with the number of units, but it is common for the unit cost to decrease as quantity is
increased (bulk purchasing), as there are discounts etc. This reduction in long run unit costs which
arise from an increase in production/purchasing is due to the fixed costs being spread out over
more products and is called economies of scale.

Estimating the unit cost

There are a number of methods that can help project estimators and the project management
team to establish reliable project unit costs to be factored into the project budget. The following
are the commonly used methods;

 Expert judgement
 Analogous estimating
 Three-point estimate
 Vendor analysis

1. Expert judgement
Involves consultation with one or more local experts who are knowledgeable about the project at
hand. The method relies heavily on the experience of their knowledge in similar completed
projects and the accuracy of these past projects. If more than one expert is used the weighted
average of their estimates are taken.

2. Analogous estimating
Uses the costs from similar projects or activities as the basis for the current project. As long as the
two activities are similar and are occurring under similar situations this can be a fairly reliable
technique.

3. Three-point estimate
This is also called PERT analysis and it helps to remove the uncertainty from estimates by
providing a weighted average using the pessimistic, optimistic, and most-likely values. The formula
is;

Optimistic Cost Estimate + (4 x Most-Likely Cost Estimate) + Pessimistic Cost Estimate)

6

 Optimistic cost estimate- cost if everything go easy without

 Pessimistic cost estimate- cost if everything goes really bad
 Most likely cost estimate- cost in between the optimistic and pessimistic costs

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4. Vendor analysis
If the project involves procurement activities, vendor bid analysis may also be used to develop
estimates. Using this method the bid of a vendor will be compared with bids of other vendors
and/or by an own detailed cost analysis. Here quotations, proposals and bid documents are used

When deriving the unit cost, it is also important to know the unit of measure of the resource. The
following are examples.

Resource/activity Unit of measure

Telephone useage Cost/minute or second
Leased machines Rate/hour
Vehicle useage Rate/KM
Accommodation Cost/night
Consultants Rate/hour

Therefore, the project team must agree with relevant authority in terms of which unit cost and unit
of measurement shall be used in project budgeting.

1.5 DETERMINING RESOURCE REQUIREMENTS

You should have noticed it by now that resource useage results in costs. Therefore, in order for
the project to determine the cost of the project given the unit cost, the amount of resource needed
or duration of useage must be known.

The following must be identified when determining resource requirements of a work package.

1. List the Resource type required

This involves listing the resources required in your project. This can include;
 Labour. Identify all the roles involved in undertaking the project, including all full-time, part-
time and contracting roles.
 Equipment. Identify all of the equipment involved in undertaking the project. For instance, this
may include office equipment (e.g. PCs, photocopiers, and mobile phones),
telecommunications equipment (e.g. cabling, switches) and machinery (e.g. heavy and light
machinery).
 Materials. Identify all of the non/consumable materials to complete project activities such as
office materials (e.g. photocopy paper, stationery, ink cartridges) and materials required to
build physical deliverables (e.g. wood, steel and concrete).

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2. Quantify the Resource Required
This entails a description of specification of each resource.
 for labour, list the skills and experience required by each role
 for equipment, list the specification of each equipment item
 for materials, list the type of each item of material required

Then quantify the amount of each resource by stating the total quantity needed, the date within
which it must have been acquired and the date that it is expected to have been consumed by.

3. Unit cost
This involves identifying the cost per unit for the resource. Unit costing has been covered in earlier
sessions.

Below is a an example of resource requirements for a work package;

Work package Type of resource Quantity/ duration Unit cost

WP 1 Engineers 3 for 5 months 25 000/month
Vehicle 1 vehicle 60/Km
Lodge 3 nights 600/night

1.6 FIXED COSTS AND VARIABLE COSTS

There are two main types of costs in a project. That is, fixed and variable costs;
1. Fixed Costs
Fixed costs are those business costs that are not directly related to the level of production or
output. In other words, even if the business has a zero output or high output, the level of fixed
costs will remain broadly the same. In the long term fixed costs can alter - perhaps as a result of
investment in production capacity (e.g. adding a new factory unit) or through the growth in
overheads required to support a larger, more complex business. Examples of fixed costs: Rent
and rates, Depreciation, Research and development and Administration costs.

2. Variable Costs
Variable costs are those costs which vary directly with the level of output. They represent payment
output-related inputs such as raw materials, direct labour, fuel and revenue-related costs such as
commission. A distinction is often made between "Direct" variable costs and "Indirect" variable
costs.

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  Direct variable costs are those which can be directly attributable to the production of a
particular product or service and allocated to a particular cost centre. Raw materials and
the wages those working on the production line are good examples.
 Indirect variable costs cannot be directly attributable to production but they do vary with
output. These include depreciation (where it is calculated related to output - e.g. machine
hours), maintenance and certain labour costs.

1.7 PROJECT SCOPE STATEMENT

A project scope statement is a written confirmation which defines specific project goals,
deliverables, tasks, cost and deadlines. The scope statement also provides the project team
leader with guidelines for making decisions about change request during the project.

A good Scope Statement includes the following information:

 Justification: A brief statement regarding the business need your project addresses.

 Product scope description: The characteristics of the products, services, and/or results
your project will produce.

 Acceptance criteria: The conditions that must be met before project deliverables are
accepted.

 Deliverables: The products, services, and/or results your project will Project

 Exclusions: Statements about what the project will not accomplish or produce.

 Constraints: Restrictions that limit what you can achieve, how and when you can achieve
it, and how much achieving it can cost.

 Assumptions: Statements about how you will address uncertain information as you
conceive, plan, and perform your project.

1.7.1 SCOPE VALIDATION

Scope validation confirms that work being considered is aligned to the work breakdown structure
(WBS) details, project scope plan and project plan. The validation is done using reviews or audits
and user trials. It is different from quality control because it is concerned with the acceptance of
the definition of the deliverables while quality control is concerned with the deliverables meeting
quality requirements.

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Summary

Synopsis

In this section you performed project budgeting

Notes

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SECTION 2: PREPARATION OF A PROJECT
COST BUDGET

Specific Outcome
On completion of this section you will be able to participate in the
preparation and production of a cost budget

Assessment Criteria
This specific outcome shall cover:
 The elements of cost for each work package are estimated. (SO 2,
AC 1)
 A cost budget is documented in agreed format and within agreed time
frames. (SO 2, AC 2)
 Underlying assumptions of the estimate are explained, motivated and
documented. (SO 2, AC 3)
 Approval is obtained for the budget from higher authority in accordance
with established standards and procedures. (SO 2, AC 4)
 Cost budget figures balance and are correct. (SO 2, AC 5)

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2.1 INTRODUCTION

The process of determining budget for a project is an activity of aggregating the cost estimates of
individual activities, or a work package, to develop the total cost estimate that allows setting a
formal cost baseline. This baseline is used to state the budget. However, the budget may differ
from the formal cost baseline and constitute the funds authorised to perform the project and its
activities.

The project budgeting process is conducted at the initial steps of project planning, and typically it is
performed in parallel with the project scheduling process. The steps of the process are highly
dependent upon the cost estimations, task durations and allocated resources.

2.1 THE BUDGET PREPARATION PROCESS

The project manager should use the Work Break Down Structure (WBS) of the project, the costs
estimates, historical data and records, resource information, and policies in order to identify the
monetary resources required for the project. This statement refers to the steps of the project
budget determining process. The steps are listed below:

1. Using the WBS. The project manager should investigate the project work decomposition to
see the dependencies between the work items, as well as use WBS dictionary to get the
identification of the project deliverables and the description of each WBS component that
are approved to produce the deliverables. Then the project manager needs to work with the
cost estimating team to receive cost estimates per work package of the WBS. The obtained
information will then be used for aggregating cost estimates and setting the cost baseline.

2. Reviewing Historical Data and Lessons Learned. The project manager needs to review
records and historical data of the previous successful projects and look for tools, methods
and techniques that have made these projects succeeding. Cost estimates, WBS examples,
resource allocation, estimating methods, members of the estimating team, budget control
tools, etc. obtained from successfully completed projects all this valuable information
should be collected and examined, then sorted and filtered, and finally specific solutions
and ideas for managing budgeting activities should be generated, considering the critical
success criteria and factors.

3. Investigating Resource Information. At this step, the project manager in collaboration

with the estimating team should collect and investigate information on available resources,

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 including human resource, equipment and materials. After the investigation of the resources
a description of resource availability is to be created and then used for estimating costs.

4. Following Project Policies. The project manager should review existing standards and
requirements stated in project policies. Project policies may cover the inflation rate that
must be factored during project budgeting.

Budgeting inputs
The following budget determining inputs can be considered when developing a project budget:
 Activity Cost Estimates provide a cost estimate for each work package (a set of individual
activities) within the WBS.
 Estimates Basis shows all details on cost estimates and specifies the basic decisions
regarding the inclusion or exclusion of indirect project costs.
 Scope Baseline includes the scope statement, the WBS and WBS dictionary allowing
determining the project budget in accordance with the cost estimates per work package.
 Project Schedule is a component of the project management plan and it reflects planned
start and finish dates for the project activities, milestones, time-frames for individual
activities and work packages, and auditing calendars. The information in Project Schedule
is used to develop a cost schedule that indicates when the costs are planned to be
incurred.
 Procurement Contracts are used to determine the project budget considering all costs
incurred and associated with products and services purchased from vendors and suppliers.
 Resource Calendars are used to investigate information on resource assignments and
allocation of working time assigned to the resources.

The following table can be used to help the project team to decide how to enter and track costs in
the budget.

IF A TASK'S AND YOU WANT APPROXIMATE OR YOU WANT DETAILED

COST IS BASED COSTS, DO THIS: COSTS, DO THIS:
ON:
Hours worked or  Specify rates for all work  Specify rates for all
amount of material
used resources and material resources. resources/materials.

 Assign resources to tasks.  Assign resources to

tasks.
 Track hours worked or percent
complete.  Track hours worked.
A set fee for a task  Specify fees for tasks.  Specify fees for tasks.

 Assign resources to tasks only if  Assign resources to

you have tracking needs beyond tasks.

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 cost tracking.  Track hours worked or
percent complete.
A set fee for use of  Specify per-use costs for  Specify per-use costs for
a resource
resources. resources.

 Assign resources to summary  Assign resources to

tasks or subtasks. tasks.

 Track hours worked or percent  Track hours worked or

complete. percent complete.

2.2 BUDGETING ASSUMPTIONS

Assumptions are an important aspect of planning and budgeting because information is

sometimes incomplete. It is impossible to predict all future events, therefore, assumptions must be
made regarding future operational, market, and economic conditions and events. Documentation
and communication of significant assumptions is important for consistency and fairness in the
planning and budgeting process.

Assumptions can relate to both long and short term aspects.

 Long term assumptions should be tied to the long term goals and strategy.
 Short term assumptions should focus on the operational initiatives within the immediate 12
month outlook.

Points to note
It must be noted that;
 Information used to form assumptions is usually more relevant in a one year budget than in
the 5th year of a 5 year budget.
 The accuracy of assumptions is also dependent on the length of time taken for the planning
process.
 Assumptions should be reevaluated and updated to be in sync with current project
conditions and other budget decisions before the budget is approved, which could be
associated with the number of budget iterations throughout the planning process.
 Assumptions should span all operational facets of the project, the marketing outlook, and
the financial ground rules to work harmoniously throughout the planning and budgeting
process.

 Key assumptions should be documented and communicated by a central planning function

that maintains configuration control.
 Organizational risk should be factored into or documented in assumptions.

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Examples of budgeting assumptions

 Inflation rate shall increase by 2 % in the next 6 months

 All resources procured shall be enough for the project.
 All project team members shall be committed and have the necessary skills.
 All project team members shall use their personal cars during the lifespan of the project.
 The engineer for the project shall be paid by the organisations operational budget.
 Security shall be in place to prevent loss of material due to theft.
 Insurance costs shall be R100 000 per month.
 Rent for the site office shall be R5 000 per month.

Project budgeting assumptions must always be listed after the budget.

The next page shows an example of a project cost budget.

Page 22 of 43
120375
 EXAMPLE OF A PROJECT BUDGET

Project Cost Budget by Month Project XYZ4456

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8

Day P P P P P P P P
Direct Labour Rate /Day Cost /Day Cost /Day Cost /Day Cost /Day Cost /Day Cost /Day Cost /Day Cost
Java Developer 500 10 5000 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Junior Java Developer 700 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Project Manager 300 30 9000 30 9000 30 9000 30 9000 30 9000 30 9000 30 9000 30 9000
Technical Architect 400 30 12000 5 1500 5 1500 5 1500 5 1500 5 1500 5 1500 5 1500
Information Architect 300 30 9000 5 1500 5 1500 5 1500 5 1500 5 1500 5 1500 5 1500
DBA 700 0 0 30 9000 30 9000 30 9000 30 9000 30 9000 30 9000 30 9000
Sub
Other Direct Costs Totals 100 35000 70 21000 70 21000 70 21000 70 21000 70 21000 70 21000 70 21000
Training XYZ Ltd 0 0 0 0 0 0 5000 5000
XYZ Consulting 15000 15000 2000 2000 2000 2000 2000 2000
Software 6000 1000 200 200 200 200 3500 200
Sub
Other Charges Totals 56000 37000 23200 23200 23200 23200 31500 28200
Overhead 0.15 8400 5550 26680 26680 26680 26680 36225 32430

Total Cost 64400 42550 49880 49880 49880 49880 67725 60630
Cumulative Cost 64400 106950 156830 206710 256590 306470 374195 434825

SOURCE:
http://www.claretyconsulting.com/it/comments/free-
project-budget-template/2008-10-09/
Prepare a project budget for organising a 1 day conference given the following information. (Use the
template given in this session)
 5 speakers have been booked at a cost of R3000/hour. Each speaker is allocated 2 hours to
present.
 The total number of delegates invited are 500.
 Lunch is charged at R40 per plate.
 The conference facility is being hired at a cost of R200 per seat.
 Data projector shall be hired at a cost of R500 per day.
 Transport for the delegates have been charged at R100 per delegate. Assume the delegates and
the speakers shall use the same transport facility.
 Stationery cost is R 2000.

2.3 BUDGETING TECHNIQUES

There are various methods and techniques that are utilised to draft budgets. Amongst the many
techniques are,
 Line-item budgeting;
 Incremental budgeting;
 Zero-based budgeting; and
 Performance Budgeting.

1. Line-item budgeting
Line-item budgeting is a method typically used by governmental entities in which budgeted financial
statement elements are grouped by administrative entities and object. These budget item groups are
usually presented in an incremental fashion that is in comparison to previous periods. Line item budgets
are used for the comparison and budgeting of selected object groups and their previous and future
estimated expenditure levels within an organisation.

Line item budgeting can be defined as a method of budgeting in which each item of expense or source
of income is budgeted separately (line by line). The exact amount planned to be spent or received as
income for each item of expenditure or income is specified. In this method, there is focus on the nature
of income and expenditure, rather than the purpose of the expenditure.

24 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
Advantages of Line item budgeting
 Provides a list of items that need to be purchased which might have otherwise be lost under
more general programme headings.
 Easy to prepare and does not require sophisticated financial skills.
 Calculates unit costs and classifies expenditure into broad categories.
 Focuses on past expenditure patterns.
 Allocates funds to individual items.
 Easy to monitor, and to gather data.

Disadvantages of Line item budgeting

 Does not relate to performance.
 Is not aligned to the strategic objectives.
 Planning may be neglected if the focus is on historical activities and cost

Below is an example of a line budget.

Line Item budget

First Meeting Second Meeting Total

Lodging 18 x R172 = R3096 19 x R165 = R6231
R3135

Food 18 x R125 = R2250 19 x R125 = R4625

R2375
Meeting Room R420 R420 R840
Stipend and fringe benefits for R500 R500 R1000
administrator
Stipends for workshop consultants 5 x R300 = R1500 5 x R300 - R1500 R3000
Stipends for workshop facilitators 7 x R250 = R1750 7 x R250 = R1750 R3500
Administration and supplies R400 R403 R803
Total R19,999

25 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
2. Incremental budgeting
Incremental Budgeting is a system that uses the previous period's budget (or actual performance) as a
basis for the next period's budget. Incremental amounts are added to the previous period's budget for
the new budget period. Incremental Budgeting can also be defined as a method used for budgeting
which essentially adds a fixed percentage to each item in the previous year's budget. This method may
only be applied on regular expenditure, e.g. telephone, salaries and electricity that normally increase
annually based on inflation.

However, it must be emphasised that this method should not be used for all items of income and
expenditure as the budget will prove to be very inaccurate.

This method may only be applied on regular expenditure, e.g. telephone, salaries and electricity
that normally increase annually based on inflation.

Advantages of incremental budgeting

 The budget is stable and change is gradual.
 Managers can operate their departments on a consistent basis.
 The system is relatively simple to operate and easy to understand.
 Conflicts are avoided when departments appear to be treated similarly.
 Co-ordination between budgets is easier to achieve.
 The impact of change can be seen quickly.

Disadvantages of incremental budgeting

 Assumes activities and methods of working will continue in the same way.
 No incentive for developing new ideas.
 No incentive to reduce costs.
 Encourages spending up to the budget so that the budget is maintained next year.
 The budget may become out-of-date and no longer relate to the level of activity or type of
work being carried out.
 The priority for resources may have changed since the budgets were originally set.
 There may be budgetary slack built into the budget, which is never reviewed.
 Managers might have overestimated their requirements in the past in order to obtain a budget
which is easier to work within and which will allow them to achieve favourable results.

26 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
Given that rentals for the premises you are leasing for the year of 2007 are R15, 000. In the lease
agreement, the lease indicates that the rental will increase by 5%, what will be your budgeted rental
figure for 2008?

3. Zero-based budgeting
Zero-based budgeting is a technique of planning and decision-making which reverses the working
process of traditional budgeting. In traditional incremental budgeting, departmental managers justify only
increases over the previous year budget and what has been already spent is automatically sanctioned.
No reference is made to the previous level of expenditure.

By contrast, in zero-based budgeting, every department function is reviewed comprehensively and all
expenditures must be approved, rather than only increases. Zero-based budgeting requires the budget
request be justified in complete detail by each division manager starting from the zero-base. The zero-
base is indifferent to whether the total budget is increasing or decreasing. The term "zero-based
budgeting" is sometimes used in personal finance to describe the practice of budgeting every dollar of
income received and then adjusting some part of the budget downward for every other part that needs to
be adjusted upward. It would be more technically correct to refer to this practice as "active-balanced
budgeting"."With zero-based processing one can forget about last year, pretend that the program is
brand-new, and see if one can provide a detail of expenses for what one would need to fully accomplish
the program.

Because the zero-based budget is prepared from scratch each year it requires a document (also called a
decision packet), which identifies each function of activity to enable management to evaluate the
necessity of the activity and to determine its position on the priority scale of the budget. Zero-based
budgeting refers to a method used for budgeting by starting with a clean sheet of paper. One must start
estimating all expenditure based on the strategic objectives, activities and identified needs of the
institution. In other words, one is required to attach a cost to every activity planned and for every need
identified in order to ensure effective and efficient running of the institution. Sources of income must then
be identified to meet the expenditure required. If insufficient income is projected, then the planned
activities must be re-visited and re-prioritised to reduce expenditure in line with the expected income.

Advantages of Zero-Based Budgeting

 Efficient allocation of resources, as it is based on needs and benefits.
 Drives managers to find cost effective ways to improve operations.

27 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
  Detects inflated budgets.
 Useful for service departments where the output is difficult to identify.
 Increases staff motivation by providing greater initiative and responsibility in decision-making.
 Increases communication and coordination within the organisation.
 Identifies and eliminates wasteful and obsolete operations.
 Identifies opportunities for outsourcing.
 The budget is more accurate.
 The budget is linked to activities and needs.
 The budget considers the objectives of the institution.

Disadvantages of Zero-Based Budgeting

 It takes so much time and consultation to construct
 It creates a repetition of work where certain items just needed to be incremented

2.4 PROJECT BUDGET APPROVAL

After the completion of the budget, the project team must submit it to relevant authority for approval.
Approval is a way of controlling the financial costs of the project. Most projects use budget approval form
when approving project budgets. Below is an example;

BUDGET APPROVAL FORM

Date Requestor
Proposed budget; Account number for expenses
R:
Project name
Project scope:

Approvals* (Project Request Form Attached)

____________________________________________________________________________
We, the undersigned, approve the use of the above mentioned funds for the use of the specified
project within the approved bounds of this project. Any deviations or alterations to the budget of
this project as currently defined must be accompanied with the appropriate written approvals.
________________________________
Project Board- Chairman Date

28 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
_________________________________ ___________________________
Project Board- Vice Chairman Date Project Board- Treasurer Date

*Approved Spending Limits

None: Project team
Less than R200 000: Project manager
Above 200 000 but below R500 000 Project board Treasurer
Above 500 000 Project board

Summary

Synopsis

In this section you prepared a project cost budget

Notes

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30 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
SECTION 3: MONITORING AND CONTROLLING A
PROJECT BUDGET

Specific Outcome
On completion of this section you will be able to contribute to the monitoring
and controlling of cost budget

Assessment Criteria
This specific outcome shall cover:

 Cost budget is communicated in a manner that ensures all relevant

parties are clear on its contents. (SO 3, AC 1)
 Actual cost against the budget elements are obtained and records
updated correctly. (SO 3, AC 2)
 Deviations of actual against budgeted costs are identified and
communicated to higher authority. (SO 3, AC 3)
 Opportunities for corrective action or improvement are identified and
communicated to relevant individuals/teams. (SO 3, AC 4)
 Financial records are maintained according to agreed standards and
procedures and within agreed time frames(SO 3, AC 5)

31 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
3.1 INTRODUCTION

Once a budget has been prepared, it is important for the project stakeholders to monitor and control it.
Control may be defined as “comparing operating results with the plans, and taking corrective action
when results deviate from the plans”. Control is a mechanism according to which something or someone
is guided to follow the predetermined course.

Control requires two things;

1. Clear-cut and specific plan according to which any work is to proceed.
2. A possibility to measure the results of operations with a view to detecting deviations.

Only then action can be taken to prevent or correct deviations. Figure 2 below shows the control
process.

Financial control in an organisation can be achieved through budgetary control.

3.2 DEFINITION OF BUDGETARY CONTROL

Budgetary control is the process of preparation of budgets for various activities and comparing the
budgeted figures for arriving at deviations if any, which are to be eliminated in future. Thus budget is a
means and budgetary control is the end result. Budgetary control is a continuous process which helps in
planning and coordination. It also provides a method of control.

Objectives of budgetary control

Budgetary control is inevitable for policy formulation, planning, control and coordination. The essence of
budgeting is to plan and control. Following are the main objectives of budgetary control.
I. Planning: Budgeting ensures effective planning by setting up of budgets.
II. Coordination: Budgets are helpful in coordination of business activities.
III. Efficiency and Economy: Effective budgetary control results in cost control and cost reduction.
32 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
IV. Increase in Profitability: Cost are controlled with help of budgets and profits targeted are
achieved.
V. Anticipation of future capital expenditure: Estimated increase in sales necessitating higher
production capacity provides advance warning for the possible capital expenditure in near future.
VI. Control: Controlling function is made to be effective as the control is centralised while budgets
are prepared and implemented.
VII. Deviations: Ascertainment of deviations is essential to fix responsibility and correct the deviations
as far as possible.

3.3 COMMUNICATING THE BUDGET

One way of ensuring that the budget is used accordingly is to communicate it to all stakeholders. Lack of
communication on the budget normally results in either over or under spending. Neither of these two
outcomes are always beneficial to the project.

The following are some of the key factors that must be taken into account when communicating a
budget;
 Budget message: Understand what you need to communicate to the stakeholders
 Audience: Know whom the budget is targeting. Understanding the audience is important because
it determined the approach and language that you shall use in the presentation.
 Allow the stakeholders to ask specific questions relating to the budget allocations. Be able to
justify the expenditure. To this end, the ability to listen and respond to questions is critical.

 Demonstrate competence in budgeting: Listeners like to know that a speaker is knowledgeable

about the topic. However, listeners don't like a braggart. In addition, being well prepared and well
organised will help you demonstrate your competence as a speaker.

 Build trust: Speakers often tell the truth in a conversation only to discover later that their listener
did not believe what they said. If a listener has ever been lied to by a speaker, or has reason to
believe that the speaker lied to others, he will distrust the speaker. It is important to speak
honestly in every conversation to build a reputation for honesty.

Channels of communication
Communicating a budget can be done using a number of channels. The following are examples;
1. Meetings – One of the most common ways to communicate a budget. They can vary from only
1 person to thousands based on message and audience appropriate. It is the best way as
you have the verbal and non verbal cues that enhance the communication and avoid
misinterpretation.

2. Conference Calls– These days this is the most common as it does not require the time and
expense of travel. The dialogue can take place though its dependant on voice intonation and
33 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
 clarity of the verbal message. They only require cost of phone call and there are many paid
and free services that will facilitate use of a conference call line for many people to dial into.
It’s also a common way for classes to be recorded and replayed when its convenient for you.

3. Newsletters/ Email/ Posters – This strategy is one way communication of the budget and
utilizes emailed updates, hard copy brochures, posters, newsletters mailed or emailed. One
of the weaknesses is that messages are delivered and you cannot guage if they were read
and understood, deleted as sometimes there is no feedback. That immediate feedback is
valuable for strengthening your message and making sure impacts and feedback are quickly
received.

3.4 BUDGET VARIANCES

Budget variances are a useful tool in budget monitoring and control. Variance analysis compares the
actual to the budgeted figure. The main reasons for budget variances are;
 Faulty Arithmetic in the Budget Figures
 Errors in the Arithmetic of the Actual Results
 Reality is wrong
 Differences between Budget Assumptions and Actual Outcome

1. Faulty arithmetic in the budget figures

It is perfectly possible to have an error in the budget. This includes errors of commission or duplication
as well as pure arithmetic. One action is to make a note to ensure it does not happen again when the
next budget is being done. Other action depends on the error.

2. Errors in the arithmetic of the actual results

It is perfectly possible for the actual results to be reported wrongly. This includes the use of the wrong
category, omission of costs, double counting of income etc. One well known way of staying within budget
is to throw away any invoices received from suppliers, or charge them to someone else's account code.
This sort of deliberate action makes nonsense of budgetary control and must be avoided. The corrective
action once this is discovered is to prevent it happening again. Improvements in management education
and/or control procedures are recommended.

3. Reality is wrong
Sometimes the Actual results are useless as an indicator. A strike or natural disaster will have an impact
on results. This does not mean that the budget process in future should include an allowance for this
happening again. (However in large organisations it is normal to allow for the impact of a disaster
centrally as a contingency even if it is not budgeted at operating unit level.) If necessary, insurance

34 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
should be taken out. If business is disrupted for two weeks, then it is pointless to compare the remaining
two weeks of the month against a full month's budget.

4. Differences between budget assumptions and actual outcome

This is the key issue and the one which involves the use of variance analysis techniques. Remember
that all budgets contain errors in the assumptions. No one knows the future outcome for certain. The
important thing is not to apportion blame by looking backwards, but to look forwards and take action to
improve the future in the light of experience.

Variance analysis
As highlighted earlier, the budget is controlled by a process called variance analysis. Daily, weekly, or
monthly actual performance figures are entered and reported on the organisation's budget position
sheets. These actual performance figures are compared with the budgeted figures and resulting
difference is evaluated. This difference is called the variance.

Variance = budget (standard) – actual

For Example: Identifying Variance in Expenses Figures

If the budget figure is greater than the actual performance figure, then we have a positive or favourable
variance. This means we have spent less than we had allowed to be spent in the budget. If the actual
performance figure is greater than the budget figure, then we have a negative or unfavourable variance
that is we have spent more than we had allowed for in the budget. A simple demonstration is shown in
fig 3 below.

35 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
Example of a variance analysis (Expenses);
Item 2007/08 2007/08 Variance
Actual Budget
Personnel 200 000 150 000 (50 000)
Professional services 100 000 80 000 (20 000)
Administrative 50 000 50 000 -
Consumables 50 000 60 000 10 000
Transport and accommodation 100 000 100 000 -
Advertising support 200 000 200 000 -
Research and development 300 000 300 000 -
Rent 200 000 190 000 (10 000)
Conference fees 300 000 270 000 (30 000)
Total Expenditure 1 500 000 1 400 000

Calculate the variance given the following information.

ITEM 2007/08 2007/08 VARIANCE
ACTUAL BUDGET
Salaries 140 000 150 000
Consultancy 10 000 80 000
Telephone expenses 40 000 60 000
Printing 20 000 60 000
Transport and accommodation 150 000 190 000
Advertising support 209 000 201 000
Research and development 30 000 200 000
Rent 90 000 190 000
Conference fees 30 000 27 000
Total Expenditure

36 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
3.5 CORRECTIVE ACTION
When we check performance against the standard, or the budget figure, and have identified a variance
we need to do two things:

 Determine the size of the variance

 Decide on action to be taken to correct that variance

There are four main options available to us to correct a variance between the budget standard and the
budget actual, they are listed below:

1. Take No Action
In many cases, organisations allow for an amount of variance, which they consider acceptable. In some
cases a manager is allowed a certain level of discretion in signing off on departmental expenses. For
example, if you have the authority to spend R500 without getting approval from a more senior manager,
then this amount of variance may be tolerated. In other cases a manager may be able to fund the
variance in one budget using funds available in another budget.

2. Increase the performance

In this case the work team has to improve its performance in order to contain the variance within a
specified time. Methods for achieving the performance improvement include:

 Training or counselling - In this case a participative, non-threatening approach is taken

to help the work team achieve improve performance, and thereby achieve the budgetary
goal.
 Disciplinary procedures - The work team is rebuked for its failure to perform and, in
some cases, the team may be threatened with consequences such as loss of staff, if it
doesn't eliminate the variance by the end of a specified period.
 Remove root causes - Identify and remove causes of problems, don't just fix the
problems.

3. Increase Revenue
If expenses are higher than anticipated then these may be offset by an equal, or greater, rise in revenue.
Activities such as promotional campaigns may help to increase the level of sales revenue.

4. Decrease Expenditure
By decreasing the cost of one, or all, of the elements of direct labour, direct materials or overheads, the
organisation may seek to eliminate the variance. These processes are known as cost-cutting or cost
correction exercises. In some cases costs can be reduced through scrap-reduction campaigns, but in
other instances cost reduction can be painful and seen as a negative, such as laying-off staff.
37 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
3.6 CONTROLLING PROJECT CASHFLOW
It is important to manage the cash flow on a project. Managing cash flow involves making sure that
sufficient payments are received from the customer in time so that you have enough money to cover
the costs of performing the project employee payroll, charges for materials, invoices from
subcontractors, and travel expenses, for example. The key to managing cash flow is to ensure that cash
comes in faster than it goes out. If sufficient cash isn't available to meet expenses, money must be
borrowed. Borrowing increases project cost because any money borrowed must be paid back to
the lender, along with a charge for borrowing the money the interest.

The flow of cash coming in from the customer can be controlled by the terms of payment in the contract.
From the contractor's point of view, it's desirable to receive payments from the customer early in the
project rather than later. The contractor might try to negotiate payment terms that require the customer
to do one or more of the following:
• Provide a down payment at the start of the project. This requirement is reasonable when the
contractor needs to purchase a significant amount of materials and supplies during the early
stages of the project.
• Make equal monthly payments based on the expected duration of the project. Cash outflow
usually is smaller in the early stages of a project. If more cash is coming in than is going out
during the early part of the project, the contractor may be able to invest some of the excess cash
and earn interest. The saved funds can then be withdrawn to meet the greater cash outflow
requirements later in the project.
• Provide frequent payments, such as weekly or monthly payments rather than quarterly
payments.

The worst scenario from the contractor's point of view is to have the customer make only one payment
at the end of the project. In this situation, the contractor will need to borrow money to have
cash available to meet expenses throughout the project.

The contractor's outflow of cash can also be controlled by the terms of payment, in this case in contracts
with suppliers. The contractor wants to delay payments (cash outflow) as long as possible. For example,
a contractor who has ordered R100, 000 worth of material would want to wait until it has all been
delivered before paying the supplier. If the supplier's invoice states that it must be paid within thirty days,
the contractor would probably hold off until about the 27th day before making the payment.

38 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
3.7 MAINTAINING FINANCIAL RECORDS
Maintenance of financial records is another key consideration in budgetary control. If records are not
properly maintained, it will be difficult to check spending against the budget. To maintain the local's
financial records:
1. Remember that the basic accounting record for many organizations is the cheque book or the
system of documents that keeps track of deposits and disbursements from the checking account.
2. Adequate remarks should be noted in the cheque book to clearly identify and describe each
transaction.

3.7.1 Maintaining the cheque book

To maintain the local's cheque book:
1. Where the project finances are concerned, the use of cash should be discouraged.
All other payments should be made by cheque and cheque should not be made payable to
"Cash."
2. If a project maintains one or more savings accounts, payments should not be made directly to or
from the savings accounts but should go through the checking account as well. This provides a
detailed record of all transactions from a single source - the cheque book.
3. The cheque book should be reconciled each month shortly after the statement is received. This
activity gives you the opportunity to quickly correct any errors that you may have made and to
find any errors that the bank may have made. Banks do make mistakes.
When maintaining your cheque book...

DO:

 Keep a running balance in the cheque book or on the computer.

 Enter checks and deposits immediately.
 Reconcile the account soon after you receive the statement.
 Have two officers sign all checks.

DON’T:

 Sign cheques that have not been completely filled out.

 Use rubber stamps instead of signatures.
 Use checks out of numerical sequence.
 Make checks out to "Cash."

DON’T EVER:

 Sign blank checks.

39 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
3.7.2 Maintaining the cash receipts journal

To maintain the cash receipts journal (CRJ) you should:

1. Log all moneys received, by date and in the order received.

Tips:

 It is usually easier to record transactions in the cash receipts journal (CRJ) when they are
made instead of waiting until the end of the month.
 For each month, a new and separate page should be started in the cash receipts journal.

2. Classify all moneys received in the appropriate account categories as they are recorded.
3. Account categories used in the CRJ should be the same as those used in the budget.

3.7.3 Maintaining the cash disbursements journal

To maintain the cash disbursements journal (CDJ) you should:

1. Keep a log of all checks written, maintained by date and in numerical order.
2. Classify all expenditures in the appropriate expense and budget account categories as they are
recorded.
3. Account categories in the CDJ should be the same as those categories used in the budget.

Tips:
 It is usually easier to record transactions in the cash disbursements journal (CDJ) when
they are made instead of waiting until the end of the month.
 For each month, a new and separate page should be started in the cash disbursements
journal.

40 | P a g e US 10141 Contribute to the management of project risk within own field of expertise
Calculate the variance given the following information.

ITEM 2007/08 2007/08 VARIANCE

ACTUAL BUDGET
Salaries 140 000 150 000
Consultancy 10 000 80 000
Telephone expenses 40 000 60 000
Printing 20 000 60 000
Transport and accommodation 150 000 190 000
Advertising support 209 000 201 000
Research and development 30 000 200 000
Rent 90 000 190 000
Conference fees 30 000 27 000
Total Expenditure

Summary

Synopsis

In this section you performed monitoring and controlling a project budget

Notes

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43 | P a g e US 13835 Contribute to project initiation, scope definition and scope change controls