COMPETENCE 26: BUDGETING AND COST CONTROL
The ability to develop and agree budgets for change initiatives and understanding where costs fall over time.
Budgeting and cost control comprises the estimation of costs, the setting of an agreed budget and management of actual and forecast cost against the budget.
Knowledge of the different types of estimates and costs required for a change initiative.
Establish estimates for different costs associated with a change initiative.
- The different types of costs and how they are categorised.
- The resources required to undertake all activities, both labour and non-labour.
- Ways to identify optimism bias in estimating costs.
- The types of estimates required, and the specialists required to produce them.
Knowledge of what needs to be considered when establishing a budget.
Establish and agree an overall budget for a change initiative.
- All the costs that make up the budget, including whole-life costs if appropriate.
- The difference between capital and revenue, and where costs are incurred or expended over time.
- Governance factors that may affect the budget, including tolerance levels and contingencies.
Knowledge of how funding will be allocated.
Set up funding drawdown arrangements, based on an appropriately and accurately informed cash flow forecast.
- The governance framework that needs to be followed for funding release, and its relationship to the chosen life cycle.
- Cash flow forecasting techniques.
- The forecasted expenditure, and ways to manage cash flow against stakeholder expectations.
- The appropriate authority or approval that needs to be adhered to, including contractual milestones that need to be honoured.
Knowledge of monitoring and reporting techniques in relation to financial performance.
Apply metrics to establish cost trends and produce financial reports for stakeholders, based on effective financial performance monitoring.
- Ways to establish a baseline for reporting.
- The governance in place that specifies the reporting requirements.
- Techniques to monitor financial performance.
- The sources of data and the complexities of acquiring timely and accurate data.
- The types of financial information that are appropriate for different stakeholders.
- Tolerance levels that are in place.
- The tracking systems in place to monitor actual costs, accruals and committed costs, and ways to contextualise them.
Knowledge of ways to refine a budget.
Update and refine budget allocations based on a cost analysis, through the change control process.
- How to monitor and update financial information.
- Ways to conduct a cost analysis, and who would be involved.
- The underlying reasons for the variances, both positive and negative.
- The need for ongoing refinement of estimates and tolerance levels as the life cycle progresses.