BUDGET, QUOTATIONS & COST CONTROL

Project Manager control of budget baseline, commitments, variations, expenditure and forecast final cost

Financial control on a yacht refit is not limited to checking invoices. The Project Manager must understand what has been budgeted, what has been quoted, what has been committed, what has actually been spent, what work remains, and what the project is expected to cost at completion.

A useful cost-control system distinguishes between the approved budget, purchase commitments, actual expenditure, pending variations, forecast remaining cost and contingency. These figures should be updated throughout the project so that the owner, Captain or management company receives an accurate financial position rather than discovering overruns at the end.

The Project Manager’s role is to maintain commercial visibility, challenge incomplete or unclear quotations, control additional work, reconcile invoices against approved scope and maintain a realistic forecast of the final project cost.

Key responsibilities

• Establish an approved project budget before significant work begins.
• Divide the budget into logical work packages or cost codes.
• Record the original budget for each work package.
• Maintain approved budget revisions separately from the original baseline.
• Obtain quotations before committing work wherever practicable.
• Compare quotations on a like-for-like basis.
• Identify exclusions, assumptions, provisional sums and commercial qualifications.
• Verify quantities, labour rates, material prices and subcontractor mark-ups.
• Record accepted quotations as commitments.
• Issue purchase orders or authorised work instructions.
• Prevent subcontractors from treating informal discussions as commercial approval.
• Record additional-work requests separately from the original scope.
• Obtain quotations for variations before approval wherever practicable.
• Identify authorised and unauthorised variations.
• Maintain a variation register.
• Track committed cost against the approved budget.
• Record invoices and actual expenditure against the correct work package.
• Identify accruals for completed work not yet invoiced.
• Estimate the cost of remaining work.
• Maintain forecast cost to complete.
• Calculate forecast final cost for each work package and the overall project.
• Monitor contingency use.
• Identify potential overruns early.
• Explain the reason for material cost movements.
• Maintain supporting commercial documentation.
• Reconcile subcontractor accounts before final close-out.
• Provide regular financial reporting to the authorised project stakeholders.

A simple project-control relationship to remember is:

Forecast Final Cost = Actual Cost + Committed / Outstanding Cost + Estimated Cost to Complete

The precise accounting method can vary between organisations, but the Project Manager must avoid double-counting committed, invoiced and forecast costs.

PROJECT MANAGER COMPETENCY TEST

Scenario 1 — Cheap Quotation

A subcontractor submits a quotation of €38,000. A second contractor quotes €46,000. The cheaper quotation excludes scaffolding, crane hire, travel and commissioning, while the more expensive quotation includes them.

Question:
What should the Project Manager do?

A. Select the €38,000 quotation because it is cheaper
B. Normalise both quotations to the same scope before making a commercial comparison
C. Average the two quotations
D. Select the contractor with the lowest labour rate

Correct answer: B

Why:
Commercial comparison must be made on a like-for-like basis. Excluded items can make the apparently cheaper quotation more expensive once the complete scope is considered.

Scenario 2 — Unapproved Variation

A subcontractor submits an invoice containing €12,500 of additional work that was not included in the original purchase order and was never formally approved.

Question:
What should the Project Manager do?

A. Approve it because the work has already been completed
B. Verify the technical necessity, evidence, authority and commercial basis before accepting the additional cost
C. Reject every variation automatically
D. Add the cost to contingency without recording it

Correct answer: B

Why:
Completed work does not automatically establish commercial entitlement. Variations should be traceable to scope, instruction, approval and supporting evidence.

Scenario 3 — Budget Reporting

The project budget is €1,000,000. Actual invoices total €520,000. A further €310,000 is committed under purchase orders, and the Project Manager estimates another €240,000 will be required to complete the project.

Question:
What is the approximate forecast final cost?

A. €520,000
B. €830,000
C. €1,070,000
D. €1,240,000

Correct answer: C

Why:
Using the simplified project-control approach:

€520,000 actual + €310,000 outstanding commitment + €240,000 estimated remaining cost = €1,070,000 forecast final cost.

Against the €1,000,000 budget, this indicates a forecast overrun of approximately €70,000, assuming there is no double-counting within the figures.

Scenario 4 — Invoice Verification

A contractor invoices 100% of a work package. Physical work appears nearly complete, but commissioning, documentation and several punch-list items remain outstanding.

Question:
What should the Project Manager do?

A. Approve 100% because most physical work is finished
B. Review the contractual completion basis and certify only the amount properly due against verified progress and deliverables
C. Refuse to pay anything
D. Ask the accounting department to estimate the percentage

Correct answer: B

Why:
Invoice approval should be supported by verified scope completion, agreed commercial terms and required deliverables. Physical installation alone may not equal contractual completion.

MODULE COMPLETION

Before completing this module, the Project Manager should be able to:

• establish a structured project budget
• divide the budget into logical work packages and cost codes
• distinguish original budget from approved budget revisions
• compare quotations on a like-for-like basis
• identify exclusions, assumptions and provisional sums
• understand fixed-price and time-and-material commercial models
• record commitments and purchase orders
• manage variations and additional work
• distinguish actual cost, accrual, commitment and forecast cost
• calculate an estimate to complete
• maintain a forecast final cost
• identify budget variance and potential overrun
• control use of contingency
• verify invoices against authorised scope and progress
• provide clear financial reporting to the owner, Captain or management company
• complete commercial reconciliation and final account close-out

← Back to Training Academy