Risks, Budget Constraints and Recommendations

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During the budget planning stage, it is not uncommon for the calculated budget expenditures to exceed the funds available at the start of the project. The next stage of planning involves figuring out how to manage with the amount of money readily available, by figuring out where certain costs can be cut without causing harm to the project.

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The charter budget for this project is 1.5 million dirhams. At the same time, cost estimations for the project are around 2.418.000 dirhams, which is almost 1 million dirhams more than we are allowed to spend. That is a large sum, and it indicates that some portions of the project would need to be changed in order to conform to budget constraints.

According to the cost estimation table, there are several processes that require major expenditures, as payment for either the materials or the labor. These activities are:

  • Logistics. The material costs for the logistical component of this project are stated to be around 200.000 dirhams.
  • Choosing the location for the factory – 700.000 dirhams.
  • Defining the tools and equipment required – 300.000 dirhams.
  • Recruiting the employees necessary for facilitating production – 750.000 dirhams.

In total, these activities constitute for about 1.950.000 dirhams, while the rest is spent on supporting activities. In order to save money and fall in line with the project budget constraints, these activities would need to be optimized. Let us review each of them and see if it is possible to save money on them without hindering the project’s efficiency too much.

The first thing we could save money on is the costs for recruiting the employees necessary for facilitating production. The actual recruitment does not necessary cost this much – the only expenditures would involve placing advertisements and reviewing applicants for the position. This sum is so large because it accounts for monthly wages for the workers that would need to be paid after the factory begins production. However, while a prudent precaution, it is not an obligatory one. If the company manages to create enough income to pay its workers from the beginning, having such a large sum of money kept around needlessly is a waste of resources.

Next, is choosing the location of the factory. It is assumed that these costs would entail paying rent for the location, as it would be impossible to buy it on such a small budget. Either way, the amount of money spent on this task could be reduced in several ways. Finding a better and cheaper deal is a solid way to do so. However, it would mean gambling on finding a better deal. Another possible solution would involve reducing the space required for setting up the shop. It would help reduce the money paid for the rent. Choosing the location would also help in this task – the farther the location is from the center of the city – the cheaper rent becomes. All of these measures, combined together, would help reduce the costs by at least a half, which is circa 300.000 AED.

To summarize, in order to fit the project into the allocated budget, the company must not allow money allocated for monthly payments not to be used and find a better and cheaper deal on renting the production space. In total, these measures would save the project around 1.000.000 AED, thus bringing the total costs down to 1.418.000 dirhams.

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Risk Assessment Matrix

Risk Impact Likelihood of occurrence (L, M, H) Degree of impact (L, M, H) Action on trigger Responsibility Response plan
Conflagration in the facility Potential loss of life, material, equipment, and documentation. L H Electrical malfunction, Human factor Procurement & Risk Manager – Prevention: Equip the facility with fire extinguishing systems, have fire extinguishers on the walls, ensure that the electrical grid is in good shape.
– Response: In case of conflagration, use all available measures to put down the fire, evacuate all personnel, and call the emergency services.
Theft Potential loss of materials, equipment, and valuable data. M M N/A Procurement and Risk Manager – Prevention: Install adequate security systems, hire a night guard.
– Set up policies of accountancy among the workers to prevent workplace theft.
Database Malfunction Loss of information pertaining clients, orders, deadlines, and documentation. L-M M-H Computer malfunction Procurement and Risk Manager – Use cloud service to keep all the important files backed up.
– Procure an antivirus system to prevent hacking attempts.
Material Non-delivery Production process will stop, deadlines will be shifted, customers will be left unsatisfied L-M H Supplier issues Procurement and Risk Manager – Keep some materials in storage to be able to continue production in case of an emergency.
– Diversify suppliers in order to not be dependent on a single one.
Lack of orders Reduced income, inability to pay for labor, materials, and equipment. M H N/A Procurement and Risk Manager – Conduct a marketing campaign to get more clients.
– Offer services at a discount.
– Make long-term contracts to avoid uncertainty.
– Have an emergency fund for such situations.
– If everything else fails, reduce working hours of employees and make cuts whenever necessary.

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BusinessEssay. (2022) 'Risks, Budget Constraints and Recommendations'. 30 November.

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BusinessEssay. 2022. "Risks, Budget Constraints and Recommendations." November 30, 2022. https://business-essay.com/risks-budget-constraints-and-recommendations/.

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BusinessEssay. "Risks, Budget Constraints and Recommendations." November 30, 2022. https://business-essay.com/risks-budget-constraints-and-recommendations/.