Introduction
A project is an undertaking that involves a lot of research. It is also carefully planned to achieve a set target (Maylor 58). In most cases, the venture has a set of interrelated duties. The activities are accomplished over a specified time period using certain resources. It is also noted that ventures are associated with limitations. Before initiating a project, it is important to define the target status or the primary objectives behind the scheme. Attaining the set aim defines the success of the endeavor. However, other criteria can be used to determine whether or not the set goals were achieved. The criteria comprise of assessing specific, measurable, achievable, realistic, and time terminated aspects of a venture. For a project to run smoothly from the initial to the end stage, there must be proper financing. Financial resources are used to ensure that all the materials needed for a venture are acquired (Megginson, Smart, and Graham 67). In addition, capital is important given that it is used to pay any parties involved in the provision of goods and services when carrying out a project.
In this paper, the author will focus on sources and methods of project funding. Section one of the paper will entail a definition of what project financing entails and the various types of funding sources available. In addition, impacts of sponsorship towards the success of a project will also be evaluated. Section 2 will focus on the benefits and risks of joint ventures in relation to long-term business plans and funding of undertakings. Section 3 will entail a discussion on the phases of project financial management in relation to PMBOK. Section 5 will involve a definition of various aspects of financial management plan. The final part of the report will be the conclusion.
Project Funding
Project Financing
Project financing refers to the long-term endowment of industrial or infrastructural ventures based on projected monetary flows from the undertaking. Brigham and Houston note that the financing process does not rely on balance sheets from financiers (72). The structure of providing monetary incorporates a number of key parties. The principals include equity investors, syndicate of banks, and other institutions that offer loans. In project financing, the money borrowed is often categorized as non-recourse loan. The capital is paid through cash generated from the scheme. According to Megginson, Smart, and Graham, sponsorship is guaranteed by the assets of the venture (98). Other securities are revenue-generating contracts. The provision of assets and signing contracts aims at giving lenders powers to take over the project in case the companies fail to abide to the loan’s terms and conditions.
Venture planners concur that project financing is a complex task compared to other sponsorship methods. The complexity results from the financial modeling and guidelines governing funding procedures. One of the major elements of project funding is risk evaluation and distribution. Hewitt notes that schemes face a number of setbacks (61). The limitations include economic, technical, political, and environmental perils. The risks are mostly reported in emerging markets and developing nations. To avoid incurring losses, financiers and financial bodies may treat the probable risks during a scheme development as non-financeable. Numerous cases of opportunistic behaviors are reported when carrying out projects. Over time, a number of measures have been taken to manage such practices. Measures put in place to deter opportunistic acts by key principals involved in projects include signing long-term agreements, such as off-take and concession, supply, and construction (Beamish 102). Another management procedure is the development of joint-ownership partnerships to align enticements.
The process of project financing is carried out by more than one party. The reason for this is to share perils and profits linked with ventures. According to Megginson, Smart, and Graham, limited recourse sponsorship is used in extremely expensive or high risk schemes (96). Multifaceted funding integrates securitization, insurance, corporate finance, and derivatives. The function of the facets is to control and manage unallocated perils. Securitization, for example, entails collecting various forms of contractual debts and vending the generated revenue to third party investors as securities. On its part, derivative option entails signing contracts that help project owners to sell underlying assets at a certain sum on a specified date. However, the price is determined by the form of option.
For the purposes of this paper, the author will select 10 sources of funding. The first includes bootstrapping, which entails funding from one’s savings. Other sources to be discussed include friends and family, small business grants, loans or lines of credit, incubators, and angel investors. The author will also discuss venture capital, bartering, partnership, and commitment to a major customer as alternative sources of funding for projects. Each of this form of funding has its unique impacts on the undertaking.
Project Funding Sources
Bootstrapping
Bootstrap financing is a process that entails funding a project using one’s own money. The aim is to get the venture off the ground. According to Pradhan, the funding technique is preferred by most entrepreneurs because it depends on the investors’ ability to utilize their resources to free extra funds needed to launch a scheme (98). In addition, the financing approach gives business owners time to concentrate on the venture and make it more customer-focused.
Implications of bootstrapping
Bootstrapping has various implications on the success of a project. One positive impact associated with the approach is good financial management. Smith notes that the success of an undertaking is enhanced by the effective use of money available (75). Bootstrapping helps the investor to manage their resources. However, this strategy may lead to a heavy debt burden on the part of the investor. In addition, it takes a lot of time for a project to grow.
Friends and Family
Financing from family and friends is a common source of funding for new businesses (Smith 74). One of the major reasons why the sponsorship is preferred is because it is flexible compared to borrowing from other lenders, such as banks, which require security. However, it is important to set formal and written agreements when getting funds from family and friends.
Implications
Financing from friends and family has a number of implications on the success of a project. One positive impact, which is a driver of success, is that family and friends give venture owners time to build and develop their business. Negative impacts, which may hinder the success, include failure to appreciate the entrepreneurial drive of the borrower. In addition, the source may not add value to the project. The aspect of value addition is caused by failure to understand the venture (Finch 88).
Small Business Grants
Small business grants are important for start-up entrepreneurships. The reason is that they are free money and easy to find online. Smith is of the opinion that grants do not need to be repaid (102). In addition, there are numerous free resources online, which help business owners to get grants.
Implications
Small business grants, as a source of financing, have a number of implications, which may affect the success of a project. For example, the sourcing is time consuming. In addition, the entrepreneur has to wait for the financiers to release funds at their pleasure. The factors may hinder the achievement of the set goals. Other aspects include competition from other business owners, strict eligibility criteria, and need to justify reasons for being awarded grants.
Loans or Lines of Credit
They are important sources of project funding. Brigham and Houston claim that banks do not take ownership position after offering loans and credits (63). In addition, business owners have no obligation to the lender once a loan is repaid.
Implications
Loans and credits have both positive and negative implications to the success of a project. The pros include fixed interest rates, which do not change over the lifespan of the loan. The fixed rates ensure that business owners do not have excessive financial constraints brought about by high interests (Smith 91). Factors that may hinder the success of the venture include seizure of personal assets and security provided to banks when one fails to pay the debt.
Incubators
Business incubators are organizations that offer financial help aimed at ensuring the success of start-up projects at the early stages (Beamish 78). The financiers include angel investors, economic-development coalitions, and state governments.
Implications
The positive effects, which ensure the success of the undertaking, include constant mentorship, expertise, and networking with other project owners. The implications of incubations that may lead to the failure of the project include conflicts between the incubator’s investment managers. Wrangles are caused by different ideas on the direction of the project and finances to be allocated to the venture.
Angel Investors
They are important sources of project funding. The financing channel is preferred due to its wide range of advantages (Megginson, Smart, and Graham 82). The pros include quick provision of capital needed for start-ups, flexible business agreements, and community involvement.
Implications
Angel investors have various implications on a venture. One of the positive aspects includes the ability to combine the knowledge and experience of various business owners (Hewitt 88). Another benefit is the lack of monthly fees. Negative implications include deception from investors, lack of follow-up, and reduced national recognition.
Venture Capital
It refers to funds paid by two or more companies allocated to develop a new business. Smith notes that the financing scheme is often a short-term form of funding (96). The main reasons why venture capital is preferred include the provision of finance for high risk projects and availability of expert advice.
Implications
Venture capital has various impacts on the success of a company. The risks involved with the funding include high interest rates and loss of control over a joint-project (Maylor 92).
Bartering
Bartering is a common source of project funding. The major benefit associated with the financial source is easy access to capital without any complications. In addition, financial power is not concentrated on one specific place (Finch 115).
Implications
The implications of bartering include limited goods and resources required to run a project, low levels of development, and poor distribution of capital (Pradhan 81).
Partnership
Partnerships are funding sources that entail different parties combining their resources and expertise. According to Beamish, joint ventures are preferred given that they provide moral support to the entrepreneurs (77). In addition, it is a cost effect source of funding.
Implications
The idea of forming partnerships has various impacts on the success of a project. Joint-ventures can hinder the success of the undertaking as a result of conflicts between business partners (Hewitt 102). Wrangles result from profit sharing issues, liability concerns, and different ideologies on how to run the venture.
Committing to a major customer
As a source of funding, committing to major customers entails advance payments. Pradhan notes that consumers provide business owners with the needed capital at low costs (85).
Implications
Committing to customers has both positive and negative implications on the success of a project. One primary factor that positively impacts on ventures and facilitates success is quick provision of capital. The process leads to faster growth and development of a project (Finch 62). However, the source of funding hinders the success of a project when the relationship between the clients and business owners is strained. The poor relationships may prompt the customers to withhold the financial assistance needed to run a venture.
Joint-Ventures
Joint-ventures are projects developed by two or more parties. As a result of this, the project or business is often under shared ownership, governance, revenues, and risks. Beamish observes that there are two categories of joint-ventures (79). The clusters include unincorporated and incorporated. The primary elements of such projects include number of parties, contributions of key stakeholders, geographic area and products or objectives of the venture, and structural form. Other aspects are appraisal of initial contribution and ownership sharing between parties, economic arrangements, and exit and evolution provisions.
Joint-ventures are pursued for a number of reasons. The rationale is to share risks associated with huge projects, access skills and capabilities, and gain advantage resulted by combining assets (Maylor 456).
Benefits of Joint-Ventures to Long-Term Business Plan
Joint-ventures have a number of benefits to the long-term business plan and funding. The advantages include sharing assets, costs, critical expertise and experience, risk, and access to new markets. Other pros are flexibility, diversification, and favorable tax treatment.
Sharing assets
Creating a joint-venture enables stakeholders to share their combined tangible and intangible assets as they strive towards attaining of the set goal (Hewitt 104). Allotment of assets is caused by a number of factors. For instance, the intellectual resources needed to begin a venture may belong to more than one individual. However, none of the parties may have all the compulsory rights required to initiate the project. As a result of this, the groups come together and offer what the other partner is lacking. In addition, joint venture is beneficial in terms of financing because one party may provide the required capital. On their part, the other partner may provide vital materials essential for the project such as equipments and property rights.
Sharing business risk
Joint-venture helps stakeholders to share risks associated with carrying out the undertaking. When working individually, a group may not be ready to handle probable perils that arise during projects. One of the risks includes the failure to yield returns required to make the development costs worthwhile. Sharing resources and financing cost helps to reduce the burden of risk (Maylor 112).
Sharing expertise and experience
Creating a joint venture is beneficial to the long-term business plan because groups involved in projects can share management expertise and experience (Beamish 80). In addition, parties can carve up technological capabilities and knowledge essential to the undertaking. For example, there are instances when one party may have extensive experience and knowledge on the project and business industry. On their part, the other group can have financial power to fund the scheme.
Sharing costs
Financing is a major problem for most projects. Joint-venture helps parties to carry out schemes that they could not afford when working autonomously. According to Brigham and Houston, joint-ventures have numerous benefits to the long-term business plan and funding of projects (74). The advantages include sharing labor and management, supply, research and development, and administrative expenses. In addition, mergers help to achieve large economies of scale, which lessen per-unit costs. The reduction is caused by efficiencies attained at advanced joint production stages.
Access to new markets
Formation of joint-ventures is beneficial to long-term business plan, which entails, for example, access to new geographic areas. Through mergers, groups can combine facets such as suppliers and consumers of the high-growth market. In some cases, one party may have distribution channels to access new markets and clients. On its part, the other participant may have intellectual property required for the project. The parties merge and work towards attaining long-term business plan by providing what another participant is lacking (Maylor 56). In addition, joint-ventures are associated with greater bargaining power in negotiation about different facets, such as contracts or agreements vital for the project.
Diversification
Joint-venture is beneficial to the long-term project plan and financing because it allows for diversification of businesses. Diversification helps parties involved in the project to reduce and manage business risks. In addition, working together facilitates quick access to required resources and finances in terms of profits generated by the venture. Hewitt notes that joint-venture is important because it improves the cash flow of the co-ventures (106).
Flexibility
Joint-ventures are beneficial to long-term business plans and funding because they offer parties responsible for carrying out the project maximum flexibility in terms of finances. In addition, merging helps to develop relationships and strategies that suite the business. Some complex ventures tend to be expensive and difficult to run when working independently (Beamish 109). As a result, it requires creating partnerships with one of more groups with a common goal to lessen the burden of carrying out the business individually.
Another advantage of joint-ventures is that they protect the earnings and profits of all parties involved in the project. Megginson, Smart, and Graham note that for the revenues to be protected and ensure effective sharing, no partner should own more than 50% of the business (99). In addition, joint-ventures ensure earnings, losses, and profits flow through financial statements of all parties. As a result, partners receive financial benefits through tax or income perspective. Joint-ventures are important because they help create strategic alliances. The partnerships are vital for implementing and sharing ideas related to long-term business plan and success achievement. In addition, working with other parties allows good financial management.
Favorable taxes
There are numerous forms of joint-ventures. Unincorporated partnerships are beneficial to the long-term business plan and funding because they offer favorable tax treatment. The fusion allows parties to receive earnings without being taxed twice (Finch 86). Taxation is often made to dividends paid to stakeholders and revenues generated by the project.
Risks of Joint-Ventures to the Long-Term Business Plan
Joint-ventures are associated with a number of risks. The perils include increased liability and uneven division of responsibilities and resources. Other disadvantages are limited outside opportunities and imbalance of expertise and assets brought into the project by other parties. In addition, joint-ventures are also associated with capitalization risks (Finch 123).
Uneven division of responsibilities and resources
Parties involved in a joint-venture are required to share equal control over the project in terms of funding, duties, and use of resources. In most partnerships, one group is often charged with the responsibility of providing technology and evaluating distribution channels throughout the joint-venture cycle. On its part, the other participant may be required to provide personnel. The unequal allocation of duties results to wrangles among parties taking part in the scheme. According to Brigham and Houston, conflict impacts negatively on success (60). As a result, the long-term business plan is affected. In addition, uneven sharing of responsibilities and resources may lead to discrepancy in the amount of finances, time, and effort contributed to the project.
Venture maturity risks
One of the reasons for creating joint ventures is to access new markets, for example, in different countries. The undertaking may suffer from maturity risks influenced by factors such as unstable political climates of the new market and lack of commitment. In the initial years of starting the venture, the benefits and commitments are clear (Megginson, Smart, and Graham 103). However, the obligation and contributions may become unclear in the later stages of the project. In addition, when foreign projects generate more returns, local governments may opt to reduce benefits for non-local joint-ventures. All these factors hinder the initial business plan and may impact success levels.
Increased liability
When creating joint-ventures, all parties involved are required to be well informed on the risks of liability associated with the business. The reason for this is that all stakeholders are exposed to any danger that may arise. When perils crop up, they are shared equally amongst all parties without considering the level of participation in the project (Beamish 75).
Dilution of profits and management issues
Joint-ventures are faced with the risk of dilution of revenues. The reason for this is that the profits are shared by all the participating parties. In addition, management concerns are a major challenge in joint-schemes. Finch notes that the issue is caused by differing management ideologies between partners (81). The stakeholders may realize that their expectations are varied.
Limited outside opportunities
Hewitt observes that most contracts and agreements governing joint-ventures bar parties involved in the project from taking part in outside activities when the undertaking is in progress (77). Groups taking part in the venture may also be required to sign concurrences, such as non-compete agreement. The contracts impact negatively on relationships with suppliers, financiers, and other business parties. As a result, the project’s plan may be affected.
Project Financial Management Process
Overview
Project financial management is a process which incorporates a number of aspects, such as planning, control, budgeting, accounting, and administrative records. Other features brought together in the procedure are internal control, disbursement, and auditing. The primary reason for incorporating the elements is to ensure venture resources are effectively managed and utilized in a responsible and consistent way.
Brigham and Houston note that effective project financial management is a continuous process with a cycle (79). Parties responsible for analyzing capital should consider and make use of principles related to financial resources of business. In addition, it is important to set accounting standards and procedures. Other factors to take into consideration when carrying out financial management include the scale and context of projects. Small and medium-sized ventures may be unable to justify investment in monetary systems exclusive to the undertaking. As a result, fiscal management is conducted by accounting systems of the major company involved in the project. On their part, large ventures are able to validate high-quality financial structures connected to the scheme’s scheduling systems (Megginson, Smart, and Graham 90). In terms of context, pecuniary control must be based on clear guiding principles for gathering and reporting financial information.
Project financial management has numerous benefits. The advantages include revenue and wealth maximization an ensuring project survival. Other pros of the process are reduction of capital cost, and maintaining proper cash flow. Finch notes one wrong verdict in financial decisions may have extensive negative impacts on a venture (96). In addition, it is important to pay and document daily expenses. The reason for this is to ensure good monetary flow.
Management Processes
There are a number of financial management processes. The procedures include planning, control, and administrative records. The practices will be described in relation to PMBOK. According to Maylor, PMBOK provides essential information related to project management (87).
Planning
Planning is an important feature in project financial management. According to PMBOK’s guidelines, the process entails defining the scope of the evaluation process. Sound objectives to be attained by the fiscal management procedure must be set. Hewitt notes that planning process involves determining how a venture will accomplish its strategic goals (71). The primary factors considered include activities, equipment, materials, and resources required to ensure set objectives are attained.
During the planning process in financial management, various duties are carried out by the executive team. The tasks include analyzing business environment, types and quantity of resources, and computing cost of each supply required for the project. Other activities are summarizing expenses to formulate a budget and determining risks and concerns of financial statements (Finch 88).
Megginson, Smart, and Graham observe that planning in project financial management is vital to the success of a company (86). The reason for this is that it helps to set fiscal targets for the corporation. However, managers should establish the time period and scope of a project before carrying out the planning process.
Controlling
Control process in project financial management entails developing systems of managing risks and providing effective assertion that formulated budget and other resources are utilized in an effective manner. Finch notes that the primary purpose of control is to ensure ethical, efficient, and economical use of finances towards the realization of project objectives (106).
According to PMBOK’s principles, control should involve tracking, regulating, and reviewing performance of venture activities. The process helps to identify areas which need change. Key persons responsible for control functions in project financial management include managers and head of budgets and finance (Maylor 88).
Effective control processes enable relaying of reliable financial information to all parties involved in a project (Beamish 98). As a result, ventures operate on solid monetary data. In addition, good control provides stakeholders with peace of mind. The reason for this is because they are certain all fiscal data are accurate and funds are well managed. Accurate accounting information allows generation of huge revenues by the project.
Financial management control process also requires analyzing of accounts receivable, credits, collection, and payable. Other facets which require evaluation are fixed assets, inventory, and closing or reporting procedures. Assessing accounting receivable, credits, and collections entails establishing limits of authority for credit insurance and terms (Megginson, Smart, and Graham 105). In addition, the process involves regular reviewing of ledgers, subsidiary, and financial statements. In terms of fixed assets, control process of financial management ensures proper authorization before any resources are disposed.
Administration Records
Financial administration records process is an important procedure in project financial management. The feature focuses on practices and principles related to efficient and effective utilization if funds. The records show how capital was raised and spent on the project. Brigham and Houston note that the process of financial administrative records has a number of components (108). The constituents include accounting, budgeting, auditing, purchasing, and supply. Budgeting in administrative records entails reviewing financial statements of generated revenues and expenses of the project as per the budget. Operating costs evaluated in the process include payments to various parties such as material suppliers and employees.
Purchasing and supply in administrative records entails analyzing procurement, and distributions of resources and equipment throughout the project (Finch 74). The process ensures the right amount of funds is used on to acquire materials or services. Failure to keep tract of transactions leads to mismanagement of funds. In addition, it becomes a challenge to determine parties responsible for embezzlement.
Definition of Concepts
There are a number of aspects in financial management plan. The facets include resource planning, cost estimating, budgeting, and control.
Resource Planning
Financial resources refer to the funds available to be used in a project. The finances may be in the form of credit lines, securities, and cash. Maylor observes that it is important for project managers to find sufficient monetary resources before beginning a venture (93). The reason for this is to ensure the undertaking runs smoothly without being affected by financial risks
Resource planning is a procedure which entails providing accurate and objective financial information. Components of resource preparation include developing a plan with clearly defined goals and objectives, identifying, and assessing facets needed to achieve the set targets (Hewitt 84). In addition, resource planning is also considered as an endeavor of estimating amount of funds required to sustain a venture from throughout its cycle.
Resource planning has a number of objectives. The aims include determining financial requirements, capital structure, framing financial guidelines, and maximizing utility. Capital prerequisites entail both long and short-term requirements. Examples of facets used to determine fiscal necessity include cost of current and fixed assets, long range scheduling, and promotional expenses. Determining capital structure in resource planning entails evaluating compositions of finances such as long and short-term debt-equity-ratio required in a project (Finch 112). Framing financial policies involves formulating principles to control borrowing, lending, and use funds.
During resource planning, it is important for project managers to determine the scope of a project and mix of activities. Megginson, Smart, and Graham observe that doubling of resources does not lead to multiple levels of productivity (78). In some instances, for example, small teams are capable of achieving more compared to big groups. Analyzing such an aspect helps to save finances that could be used pay a huge team of workers. Resource planning helps managers to determine the appropriate sum of supplies to assign in each part of a venture. In addition, it is important to determine the duration, complexity, and major activities of a project. For example, intricate and long term undertakings will require more resources compared to short-term ventures.
Apart from determining the total funds required to complete a project, resource planning helps to decide how capital will be raised. For example, parties involved in a venture may opt to raise funds internally or externally from sources such as loans, preference shares, grants, and equity. Resource planning also helps to determine appropriate investment plans to generate funds for the project (Hewitt 89).
According to Brigham and Houston, resource planning ensures that businesses do not raise unnecessary finances (69). Excessive funding can have negative effects to a project. As a result of this, parties involved in a venture should ensure they invest surplus funds in the best possible way. Resource planning as an aspect of financial management entails formulating ways of how to use and when to borrow finances in short, medium, and long-terms. Different financing sources have stipulated times for repaying loans. Long-term funds, for example, are offered by debenture holders and shareholders. On its part, short-term capital is provided by commercial banks (Beamish 96).
Cost Estimating
Cost estimating is one of the most important aspects of a financial management plan. The process entails approximating the total expenditure require for a project. Finch notes that estimation duties are carried out by professionals called estimators (79). The experts use a number of methods and practices to approximate the capital required. However, the approach employed depends on the type and class of ballpark figure to be made. The most common method for estimating cost in financial management entails identifying and understanding the scale of a project. Aspects which ensure effective estimation include validity of data collected, clear definition of tasks, autonomous appraisal of approximation, and identifying uncertainties.
Utilization of best practices is essential in cost estimating. Such practices are used to formulate high-quality approximations. Megginson, Smart, and Graham note that best practices are techniques which produce better results compared to other methods (98). However, not all best practices are applicable to every computation. Some are used where accurate cost estimates are required. Cost estimation is also done by using one or a combination of a number of approaches. The methodologies include production function, empirical outlay inference, allocation of joint costs, and unit expenditure for bill of quantities.
Production function as an approach of cost estimation entails analyzing the connection between the output of a venture and resources required to carry out the project (Hewitt 86). A case in point entails approximating the cost of construction projects. Here, a connection is established between such aspects as outputs, size of venture, and labor. Beamish notes that the general principle of production function is evaluating the amount of output over input using mathematical computations (107). The process is beneficial in reducing construction expenditure.
As an estimation approach, allocation of joint costs involves establishing an outlay function for a project. The basic procedure of the technique is that cost item is assigned to each feature of the venture. In construction undertakings, for example, basic expenditure is categorized according to facets such as building equipment, labor, and supervision (Finch 122). Other categories include material and office overhead. The estimated costs are assigned equally to all subdivisions of a venture.
As an approach for estimating expenditure, unit cost for bill of quantities involves allocating a certain outlay to each component of a project. For example, labor and materials are assigned specific amounts. The estimates are provided by multiplying the total expenditure of products with corresponding unit costs. According to Maylor, unit outlay is one of the uncomplicated methods of approximation (92). The general principle of the approach is to breakdown project processes into different duties. A unit cost is then allocated to each task depending on the nature of the undertaking.
Cost Budgeting
Well created budgets play a crucial role in helping make correct decisions on aspects such as time, scope and cost required to ensure successful completion of a venture (Brigham and Houston 77). For example, budgeting what items are needed for a venture and those to be excluded.
Cost budgeting is a financial plan formulated for each primary expenditure segment of a project. The categories include production, administrative, and financing cost. Scott et al. note budgeting determines the premeditated outlay for a venture (Maylor 75). The aspect of financial management plan is used to calculate actual and estimated cost of a running a venture. Outlays documented in a budget can be comparative or parametric.
Various aspects are considered when creating budgets. Examples of facets include resourcing, accommodation, consumables, expenses, and capital items. Resourcing comprises of staff costs. On their part, consumables are made of supplies required for the project. Other criteria used to classify expenditure during budgeting include direct, indirect, fixed, and variable cost (Finch 110).
Cost budgeting involves a number of steps. The steps include using WBS, analyzing historical data, evaluating resource information, and following project policies. WBS provides managers with information on the relationship between venture deliverables and their components. Finch observes that parties involved in projects use WBS by working with cost budgeting and estimating teams (97). The information collected is used develop cost estimates on projects components required for running the project.
Cost Control
Cost control is an aspect of financial management plan that involves evaluating expenditure activities to determine inconsistencies of actual outlay from budgeted costs. In addition, the process entails determining the causes of discrepancies and measures to manage the variance (Finch 99).
According to Finch, cost control is also beneficial in helping project managers to develop strategies for cutting expenses (92). Examples of approaches used to minimize outlay include adopting less expensive plans and working with suppliers who offer services and materials at reduced costs. When rates required to run a venture are very high, profit margins tend to be low. As a result of this, it becomes a challenge for projects to succeed. In addition, reduced turnover pushes away potential investors.
Cost controlling is also be carried out by holding meetings with key project or business stakeholders. Quarterly or annual summits depending on the duration of a venture should focus on costs as one of the key aspects of discussion. Brigham and Houston claim that engaging shareholders is important because they share and brainstorm on the best approaches to control expenditure (88). Examples of ideas raised during meeting include getting rid of costly items and changing product or services mix.
Conclusion
Project finance is a method of funding ventures based on projected cash flows. Most organizations desire to create different undertakings. However, they lack sufficient resources necessary for running the project. Project financing helps such parties to achieve their goals. The extensive growth in the business world has led to the emergence of numerous sources of funding. They include equity, debt contributions, bank guarantees, bonds, and inter-creditor agreements. The need to acquire enough finances to run projects is linked to the creation of joint-ventures. The partnerships help organizations to pool resources and work together towards the realization of a common goal.
Works Cited
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