Financial Management for Non-Profit Projects

As the government deficit continues to grow, it is essential to use public funds efficiently and still provide high-quality information and service for public use. Given limited government funding, the use of various cost estimating techniques and cost monitoring tools is critical to successful project funding management.

Poorly estimated project budgets can cause a project to fail. It is essential to be as meticulous as possible during budget planning and monitor the project cost baseline against the actual project expenses during the implementation of the project. Outlined below are several factors to think about while planning the project budget and various techniques to use for project cost estimations.

Resource availabilities, abilities, and efficiencies are some of the significant criteria to bear in mind during budget planning process. There may be various staff who are able to perform the required project activities but may be unavailable due to their commitments to other projects. When estimating labor cost assumptions, the project manager should consider that, even if a resource is less expensive, he or she may require more training and more time to complete project activities than a more experienced but more costly resource.

Bottom-up cost estimating breaks down project cost assumptions into individual activities as detailed as possible in order to come up with more comprehensive and accurate budget assumptions. For example, to estimate the cost of organizing a conference, the estimator develops individual estimates for each activity necessary to organize a conference. After determining all detailed cost estimates, the estimator aggregates the estimates to come up with the total conference budget.

Analogous estimating uses a previous project's actual costs as the baseline to estimate cost assumptions for the new project. Since this technique relies on historical data from other projects, it is ideal to use historical actuals from previous similar projects. The use of actual focus group cost information from a previous project with a similar scope of work is an analogous estimating example.

Parametric estimating takes into consideration the statistical relationship between variables to calculate the cost. This method also contributes to more accurate project cost estimates. For example, historical data on the cost of constructing a one-mile road can help estimators estimate the cost of constructing a 10-mile road.

Three-point estimating uses a range of estimates to develop a cost estimate for a project activity. For example, in order to estimate a realistic cost for completing a paint job, the estimator should set up three cost assumption scenarios: 'Most Likely', 'Worst', and Best Scenario. This method helps the estimators take into consideration the various scenarios of completing a project activity and develop more realistic cost assumptions.

Make or Buy Analysis: It may also be helpful to partner with other vendors or entities to fulfill some of the required activities in the project. This technique helps the estimator evaluate the pros and cons of having the required project tasks completed by the project team. Some potential pros and cons include the cost of doing the tasks in-house, the capability to do the required work, and the availability of resources and skills.

Finally, subject experts may provide objective valuable insight on cost assumptions. Given their expertise and experience in distinct areas, they can help the estimators develop more accurate cost assumptions for each project activity.

Project Cost Control

Project cost control is another fundamental element for the success of non-profit projects. Project budgets should be monitored closely using various cost control tools to make sure that funds are used appropriately. They also facilitate accomplishing projects goals and detect any risks ahead of time. Any changes in the scope of work or schedule can impact the baseline cost. Therefore, it is crucial to assess the impacts of these changes.

Continuous cost monitoring during execution of projects also increases the cost-related risks detection in a timely manner, helps project teams assess risks, and implements corrective changes to ensure that projects can be still completed successfully.

Earned value management, cost variance analysis, and forecasting are some of the widely used cost control techniques. Earned value management measures the project performance and progress by using scope, schedule, and resource measurement. Cost variance, estimate at completion, and estimate to complete are some of the widely used earned value calculations to track the project performance.

Communication also plays a key role in the success of every project. Consistently sharing the project cost and status information with the project team and appropriate stakeholders allows all the interested parties to be regularly informed about the status of the project and project budget. This communication also helps project teams be aware of the effort required to complete a project and any changes to the project as a result of any detected risk or issues. Cost tracking reports created with Excel spreadsheets can be great tools to communicate the project cost variances and remaining funding versus the cost of the project at completion.

In summary, planning project budgets as meticulously as possible and monitoring project costs continuously are keys to efficient financial management. Using various cost-estimating techniques during the budget planning process enhance the accuracy of the project budget. Being familiar with different cost control techniques and practicing them regularly during the project implementation process help track variances in a timely manner and prevent project failures. [1]

[1] Reference: Project Management Institute, Inc. (2013). A Guide to the Project Management Body of Knowledge (PMBOK Guide). Fifth Edition. Newtown Square: Project Management Institute, Inc.

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