37 you should be pessimistic in your n for error and not just show deliver / high once again - revenue

and costs are accrued or matched with one another and are attributed to the same point in the schedule. For example if the costs of hardware are in your budget at the point where you pay the invoice, then ALL the costs

emphasises consistency over different periods. If you change the basis on which you count certain costs you either need to revise all previous finance accounts in line with this or annotate the change appropriately so people can make comparisons on a like-for-like basis. Note that the principles are listed in order of precedence. If the principle of consistency comes into conflict with the principle of prudence, the principle of prudence is given priority. 3.3.1 Costing: At a basic level the process of costing is reasonably simple. You draw up a list of all your possible expenditure and put a numerical value against each item; the total therefore represents the tangible cost of your project. You may also however need to

Tangible costs: Capital Expenditure any large asset of the project which is purchased outright. This usually includes plant, hardware, software and sometimes buildings although these can be accounted for in a number of ways. Lease costs some assets are not purchased outright but are leased to spread the cost over the life of the project. These should be accounted for separately to capital expenditure since the project or company does not own these assets. Staff costs all costs for staff must be accounted for and this includes (but is not limited to): salary and pension (superannuation) costs; insurance costs; recruitment costs; anything which can be tied directly to employing, training and retaining staff.

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38 Professional services all large-scale projects require the input of one or more professional groups such as lawyers or accountants. These are normally accounted for separately since a close watch needs to be kept upon expenditure in this area. Without scrutiny the costs of a consultant engineer, accountant or lawyer can quickly dwarf other costs. Supplies and consumables regular expenditure on supplies is often best covered by a single item in your budget under which these figures are accrued. They are related to overhead below. One-off costs one-off costs apply to expenditure which is not related to any of the above categories but occurs on an irregular basis. Staff training might be an example. While it might be appropriate to list this under staff costs you might wish to track it independently as an irregular cost. The choice is yours but the principles of prudence and consistency apply. Overheads sometime called indirect costs, these are costs which are not directly attributable to any of the above categories but never-the-less impact upon your budget. For example it may not be appropriate to reflect the phone bill for your project in staff costs, yet this still has to be paid and accounted for. Costing for overheads is usually done as a rough percentage of one of the other factors Intangible costs balance sheets of companies and possibly also projects. The argument goes like this: some contributions to a project are extremely valuable but cannot necessarily have a tangible value associated with them. Should you then account for them in the

accountancy you should seek professional help and advice. Typical things you might place in the budget under intangibles are -related figures are a frequent source of intangible assets and so you might find things intangibles balance sheet. 3.3.2 Budgeting: Once you have costed your project you can then prepare an appropriate budget to secure the requisite funds and plan your cash flow over the life of the project. An accurate cost model will of course entail a fairly detailed design or at the very least requirement specification so that you can determine your scope of

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95

Word processing software helps write proposals and contracts, spreadsheets help evaluate suppliers, databases help track suppliers, and presentation software helps present procurement-related information. E-procurement software does many procurement functions electronically. Organizations also use other Internet tools to find information on suppliers or auction goods and services. Established companies such as Oracle ,SAS, and Baan have developed new software products to assist in procurement management .As with information or software tool, organization must focus on using the information and tools to meet the project and organizational needs. Organizations should often develop partnerships and strategic alliances with other organizations to take advantage of potential cost savings.

5.9 OUT SOURCING

Outsourcing software development and other information technology, or I.T. services continues to grow in popularity. There are several important reasons for this. Many companies that have not traditionally considered outsourcing may be surprised to learn of the benefits that it could bring them. Even organizations with large software teams may be candidates for outsourcing some of their projects. 5.9.1 Benefits of outsourcing To allow the client organization to focus on its core business To access skills and technologies To reduce both fixed and recurrent costs To provide flexibility To increase accountability Information technology is rapidly becoming more complex and is constantly changing. At the same time, many companies are finding that they increasingly need to focus their attention on the areas of their strength due to rapidly increasing market competition. For many of these companies, outsourcing I.T., at least projects that are outside their area of expertise, can greatly strengthen their competitive advantage. It also brings new energy to the organization to have projects that were causing ongoing frustration, cost, and risk to now be in the hands of another organization with the specialized skills and experience needed. Organizations that only have budget to hire a few individuals often find that by outsourcing their projects, they are still able to obtain access to a wide range of high level skills. Outsourced development companies can apply the best skill for each phase of

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96 a project. This flexibility and the availability of a larger talent pool provides optimum results at the lowest cost. Selecting the right outsourcing partner is key to realizing these benefits. Selecting an organization of an appropriate size is important. An organization that is too large for your project brings unnecessary costs and overhead. Selecting an organization with the appropriate level of skills is also important. For projects that provide significant business value and which you expect to be used long term, it is important to select an organization whose people have true enterprise level experience. The organization's vision, high-level design skills, and ability to understand and support your business goals are also very important. This is often the greatest challenge with outsourcing overseas. It takes more than technical skills for project success. The ideal outsource organization will provide local individuals with these skills as well as overseas teams that they have established relationships with. This can provide small outsourced projects with the advantage of international cost savings combined with the ease of management and all the other potential advantages that outsourcing has to offer. Outsourcing can provide tremendous benefit to organizations. It can reduce complexity and cost while increasing project success. Selecting an organization with the necessary level of skills and experience locally and who have their own established international team provides an ideal formula for success. Together, this provides your organization with the maximum efficiency and effectiveness.

5.10 SUMMARY
Project procurement management involves acquiring goods and services for a project from outside the performing organization. Procurement, purchasing or outsourcing is acquiring goods or services from outside source. Organizations outsource to reduce costs, focus on their core business access skills and technologies, provide flexibility and increase accountability. In this chapter we could discuss the various steps involved in the procurement management process needed for a project. Processes include: Planning purchases and acquisitions Planning contracting Requesting seller responses Selecting sellers Administering contracts

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