Budgeting Projects

Objectives

After completing this lesson, you will be able to:

  • Explain the integration of cost planning and budgeting
  • Explain budgeting for projects
  • Check availability control

Cost Planning and Budgeting

Cost Planning and Budgeting

Note
See the following video to follow a conversation between Linda and James about the budgeting of investment projects:

Integration of Planned Costs and the Budget

Although you must estimate your project costs as accurately as possible during the planning phase, funds are actually allocated in the form of a budget in the approval phase. The budget is the approved cost framework for a project. It differs from the cost plan in that it is binding.

A figure is shown explaining that cost planning is normally carried out before project budgeting and forms the basis for proposing and approving the budget.

Cost planning is normally carried out before project budgeting and forms the basis for proposing and approving the budget. Once the planning phase is completed, the project is approved and budgeted (i.e. assigned an original budget) by a decision-making committee. The project manager then distributes the budget to individual Work Breakdown Structure (WBS) elements at subordinate levels, according to the top-down principle.

Project Budgeting

Budgeting Process

Budgeting in the SAP Project System (SAP PS) is not a single transaction, but a process.

The process of budgeting is shown: creating an original budget with possible updates to it, releasing the budget and budget carryforward. And also availability control as a central function in the area of budgeting.

You can manage budgets in several ways, including the following:

  • Maintenance of an original budget
  • Update of a budget (supplement, return, and transfer)
  • Budget releases
  • Budget carryforward

There are various budget management functions available in the SAP Project System. You can use the SAP Project System transactions to maintain an original budget to allocate funds for a project or a part of a project. When configuring budgeting, you can specify whether funds should be assigned as overall values, or distributed by year, or both.

How to Execute Budgeting

Availability Control for Projects

Using the Availability Control for Projects

Once a project is budgeted, you can use the availability control to check the budget and assigned funds. The availability control is activated automatically or manually. Once activated, the availability control checks whether assigned funds, such as actual costs, exceed the budget.

An example of assigned funds and availability control is shown.

While a project is being executed, various business processes use available funds. For example:commitments are created and actual costs are incurred. Together with the planned costs of apportioned orders, these forms of fund commitments result in assigned funds.

The funds overview can be regarded as a passive availability control. During the availability control, the corresponding assigned funds are calculated and checked against the budget. If certain tolerance thresholds are breached (shortfall in budget or budget exceeded), this can trigger various system reactions such as a warning or an error message. When configuring tolerance limits, you can specify which reaction should be triggered and when. Once activated, the availability control is run for each subsequent posting in the project.

The following activities are carried out during the availability control:

  • The budget-bearing WBS elements (controlling elements) are determined.
  • The corresponding assigned funds are determined.
  • The assigned funds are checked against the budgets of the controlling elements. The assigned funds can be found in a subordinate WBS element itself, and also in any lower-level assignable WBS elements.

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