Use Innovative Budgeting to Better Define Your Costs

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Innovative budgeting, also referred to as life cycle budgeting, is a set of practices designed to reign in infrastructure project cost overruns by providing better insight into the full costs of construction projects from the outset. With the whole country facing the strictures of less expendable income, national sentiment has turned against the government’s habitual inability to properly forecast and manage the cost of long-term infrastructure investments.

Traditionally, when taxpayers voted on projects like road/bridge building, water management projects, etc., we only received figures pertaining to initial construction costs. With federal, state, and local governments in financial straits, accounting solutions that fail to carefully manage long-term expenses could leave taxpayers ‘holding the bag’ for escalating, ongoing costs. Thus the implementation of innovative budgeting.

Innovative Budgeting is a Three-Part Approach to Project Management

Innovative budgeting has three components.

  • Transparent Life Cycle Cost Analysis: This means that budgets for infrastructure projects must account for all direct and indirect costs associated with the project over the coming 50 years. Greater transparency and forecasting are demanded from beginning of construction and must include projections for project maintenance and repairs during the 50 year life cycle.
  • Mechanistic Empirical Pavement Design Guide: This requires that structural engineering designs take into account any regional differences which may impact the efficiency and durability of government-constructed roads. Innovative budgeting practices applied to road construction have resulted in longer lasting roads which require less maintenance and that are built for less money.
  • Alternate Design/Alternate Bid: This component exists to create an environment of competition. Innovative budgeting promotes cost-efficient project designs and only those which demonstrate cost-effectiveness are eligible for final selection.

Innovative Budgeting Software Helps Project Managers Meet Visibility Requirements

Doing away with traditional spreadsheet-driven mechanisms which are cumbersome and liable to critical errors, innovative budgeting financial accounting software gives project managers the tools for gaining accurate and timely visibility into operating plans and budgets. The solutions give insight into what the project is actually costing at each phase of the life cycle. Managers can track costs under multiple headings be it labor to materials or expenses to date. They can also analyze information to see how the true project expenses compare to the project forecast.

Innovative Budgeting Allows Managers to Review and Adjust

The demand for innovative budgeting has already delivered positive results. The Congressional Budget Office (CBO) has conducted an independent study which said that utilizing innovative budgeting practices brings down operating and maintenance costs related to infrastructure projects by nearly 40 percent while increasing reliability by 70 percent. When those responsible for project finance get up-to-date cost information, then better decisions are made. Whether parts of the project budget need adjusting or approval, or even if re-forecasting needs to take place, those decisions are strengthened by more accurate and accelerated budgeting and forecasting processes.

Life cycle budgeting solutions give managers the ability to combine project budgets and budgets created for individual divisions into a single, comprehensive operating plan. Performing regular reviews empowers managers to reconcile separate budgets and to know how funds are being allocated in discrete areas. Greater visibility into the actual project costs means that critical adjustments such as increasing or decreasing the labor count and making rate corrections can occur on-the-fly.

 

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