Question

What are the two budgets of major concern for a project? Describe the purpose of each. What is the difference between a Static Budget and a Flexible Budget? What are the pros and cons of each? What are the four constraints that must be considered when developing a project budget? Why? In doing risk analysis for your project, you have identified the following risks items: Risk P (Risk Probability) I (Cost Impact) Risk Contingency A .7 $20,000 B .25 $30,000 C .5 $16,000 D .10 $45,000 E .3 $18,000 F .30 $10,000 Total $139,000 a) Calculate the expected value of each of these risks. b) How much would you request for this project to be added to your budget as risk contingency? c) Why wouldn’t you request the entire $139,000? d) What would you do in the event Risk D occurs?

Answer 1

1)Budgeting includes expection of the cost and managing the actual cost of the project. There are two types of budget, flexible and static budget.

2)static budget - it is fixed at the time of budget approval and it doesn’t change later.

flexible budget - it depends upon the volumes, it may change over the course of time.

3) pros

static budget- the company need not worry about change in the budget.

flexible budget - if the volume of the product is uncertain, it will be useful.

cons

static budget- if something change in the project, there will be budget difficulty.

flexible budget - it gets little uncertainty around how much the cost of project is going to be.