Managing Projects

Institute of Leadership & Management

• Publisher: Routledge
• Year: 2013
• ISBN:
  9781136382468
• Edition: 5
• Topic: Business
• Subtopic: Business General
• Index: Business

Super series are a set of workbooks to accompany the flexible learning programme specifically designed and developed by the Institute of Leadership & Management (ILM) to support their Level 3 Certificate in First Line Management. The learning content is also closely aligned to the Level 3 S/NVQ in Management. The series consists of 35 workbooks. Each book will map on to a course unit (35 books/units).

Session B

Analysis of costs and
benefits

1 Introduction

If you are thinking about buying a new car you will have a number of points in mind. Cost will be important, as will the condition of the car and its reliability. If you have a family and a dog you are likely to look for a different kind of car than if you are single. But once you have narrowed your choices to, say, three different cars, you will need specific measures to help you make the final choice. Price, fuel economy and servicing costs are likely to be important in your choice.

Money is also an important measure in organizations. There is little point in spending money on anything if it is not likely to bring in more money than it costs or if it does not provide other benefits to the organization. Financial considerations are important and various techniques are available to judge the potential financial success of projects.

Not all projects lead to profits, as we saw in Session A. For instance, a road cleaning machine will not earn money for a local authority but it will meet the organizational aims of improving the environment of the council tax payers and others. In situations like this, other measures are needed, which compare the costs of the project with the benefits that arise.

In this session we will look at different financial and other techniques for analysing the costs and benefits of projects. This involves looking at separate projects and the implications of projects for the organization as a whole.

First we will cover different ways of looking at the costs of projects, depending on whether the costs are committed already, or not, and are capital in nature or not.

2 Committed and discretionary costs

When you are considering a change which involves spending money in your workplace, it is important that you are clear about how much needs to be spent. If the change is inevitable you have no choice in what you have to spend, but at other times you have greater choice and flexibility.

Certain expenditure is required by the law and the requirements of the industry you work in.

Activity 12

Think about your workplace. State two examples where changes involving expenditure have been required by legislation or industry standard rather than being decided upon by your organization.

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There are a number of possibilities you may have suggested. Typically this required change will involve:

health and safety equipment such as first-aid kit, machine guards, face masks, eye glasses;

training costs associated with handling equipment safely;

toilet and washing facilities and rest areas;

removal of waste materials and cleaning.

The organization must spend money on these matters and they are known as committed costs.

You will still need to make some sort of financial case, because there are different ways of meeting such requirements, of course. For instance, waste disposal may be carried out by your organization or by using contractors. Such decisions have an impact on the overall cost but, nevertheless, some expenditure is still essential on these matters.

As a first line manager, it is important for you to ensure that your organization adheres to the law and industry standards, so you will find from time to time that you will need to update safety materials and so on. Although you will have a good chance of having your request for funds agreed, this could reduce the budget you have for other projects.

Organizations also have other committed costs and these arise when a decision has been taken to go ahead with a major change. For instance, say a decision has been made for your organization to operate from your workplace, which may be a single site or one of a number. The rent or mortgage paid for the work area is a committed cost because, to continue, your organization must continue to pay the monthly amount. Although it is not a statutory requirement to pay the rent or mortgage, the organization cannot continue its plans without meeting this commitment.

Other costs are discretionary, otherwise known as managed or programmed costs. Advertising is a good example because the amount of expenditure on advertising is completely under the control of the organization.

The total cost for any project is likely to be made up partly of committed and partly of discretionary costs.

The Work-based assignment suggests that you speak to your manager, finance director or to y...

Table of contents

• Front Cover
• Title Page
• Copyright
• Contents
• Series Preface
• Unit Specification
• Workbook Introduction
• Session A Changes, ideas and projects
• Session B Analysis of costs and benefits
• Session C Presenting a financial case
• Session D Managing projects
• Performance Checks
• Reflect and Review