Construction Project Budget Report: Detailed Cost Analysis and Risks

This budget report provides a detailed cost estimation and risk analysis for a construction project. It includes a recommended baseline budget, an explanation of potential risk events, and a recommendation for contingency planning. The report utilizes Monte Carlo simulation and sensitivity analysis to assess cost variables and risks. Key components such as resource allocation, time-phased budget considerations, and the impact of potential value changes are analyzed. The report concludes with a comparison of the baseline versus the recommended budget, offering insights into cost management and project financial planning. This document is intended for a project sponsor and provides a comprehensive overview of the project's financial aspects.

Executive summary
The need for the budget report is very high when the size of the project is larger. In this report the
representation of the budget report is discussed and which is estimated and analyzed through various
methodologies. Using the methodologies the various things are analyzed like the baseline budget and
duration of the projects are calculated. The sensitivity analysis and other analysis are also represented
using Monte Carlo simulation. The cost variables and risk events also analyzed. The total budget and
contingency are also calculated. The final budget report for the construction work is estimated and finalized.
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Table of contents
a) Introduction..........................................................................................................................................2
b) Recommended Baseline Budget...........................................................................................................2
c) Risk events explanation........................................................................................................................8
d) Recommendation for Contingency........................................................................................................9
e) Comparison baseline versus recommended........................................................................................12
f) Appendix............................................................................................................................................12
Conclusion.................................................................................................................................................12
References.................................................................................................................................................13
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a) Introduction
The budget report is the process of estimating the cost. This report will estimate the cost using the
various methodologies. The calculations, graph, and tabulations will be estimated using the methodologies
for analyzing the budget in different scenarios. The baseline budget is one of the methodologies and it will
be calculated and estimated in this report. The Monte Carlo simulation and tornado charts are used to
representing the budget report in the form of graphical representation also will be done according to the
specification. The budget is calculated and estimated uses different methodologies for the given
construction work will be generated using the methodologies. The budget report produced to the sponsor of
the project who planned to build the project.so the report will be produced. The main theme of the project is
to build the budget report for the construction works. Using the budget report analyst can find what are the
major risks and which are all the different risks are generated. Using that report those risks will be avoided
once the project is executed.
b) Recommended Baseline Budget
Baseline budget is an accounting concept. A baseline budget is used for estimating the project
cost. And also used for comparing the performance of the project. Re-baseline means some significant
changes are applicable in scope 1(Davidović et al. 2014). A baseline budget is used for breaking all the
excepted cost of the project. Most of the proper management project includes a baseline budget 2(Aven
2018). It contains only the individual items. There two different categories are used in the baseline budget
such as materials and labor. A baseline budget is fully based on the time-phased plan. It includes several
resources such as direct cost, indirect cost, possible contingencies, and excepted profile. The direct cost
contains material, labor, and equipment 3(BALOGH 2009). Next one is the indirect cost it contains office
space, and staffs are not directly involved in the project. For instance costs for telephones, stationery,
postage, travel, taxes, and fees.1
11 (Davidović et al. 2014), 4
2 (Aven 2018), 1
3(BALOGH 2009), 3
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Baseline budget is the method for listing the cost elements and used for monitoring so it helps to
moves the project to the forward step. Baseline budgets are used to determine the over the budget or
under 23the budget 4(Ezez. 2017). The budgets are split into various categories if the categories are over
and under the budget. The below graph represents the baseline budget for the construction work. 4
Figure 1 baseline budget
The baseline budget estimated previously is 700000 and the actual budget for the baseline budget after the
calculation is 1000000.
Variables for baseline budget:
24(Ezez. 2017), 5
3
4
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Figure 2 variables for baseline budget
Variables for baseline budgets are divided into three phases. They are create draft of architecture,
construction phase and decoration phase.
Cost estimation and its representation:
Figure 3 cost estimation representation
Actual budget:
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Figure 4 actual budget
Monte Carlo simulation Technique
This technique is used in the way of mathematical concepts. It is used to analyze the risk in the
decision making. It is mainly used for the project management, research, and development. This method is
used to analyze the risks through the process of stimulation. And it also analyzes the output delivery of the
risk by using the scenarios. It had three types. They are the best case, worst case, and most likely
estimates.
Analysis of Monte Carlo method
The analysis is used to get the risk variables. And also it is used to find the variable range and
limits. Through this analysis the connection to be established for the correlated variables. It is used to
gather the final output by the usage of the running of simulation 5(Ezez. 2017). 5
5 (Ezez. 2017), 6
6

Figure 5 Monte Carlo Simulation
Figure 6 Monte Carlo Simulation Minimum value
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Figure 7 Monte Carlo Simulation in Actual Budget Amount
Figure 8 Monte Carlo Simulation in Most Likely
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Figure 9 Monte Carlo Simulation in Multivariate Data
Work breakdown structure:
Figure 10 Work breakdown structure
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c) Risk events explanation
The two possible risk events are:
Resource allocation
Resource allocation means the project manager can collect and investigate the available pieces of
information. It includes human resources, equipment resources, and material resources. Once the
investigation of the resources is completed successfully then it automatically creates a cost estimation. The
available resources contain the following components 6(Leobacher 2006). Such as starting balance,
categorical funding, one time funds. First, we need to compare the baseline budget and available
resources. Suppose the available resources are greater than the baseline budget then move on to
adjustments required to budget 7(Percoco 2012). At the same time, a baseline budget is greater than
available resources then move on to the same one.
Time-phased budget
The time management is one of the most important resources in the baseline budget. It is used for
calculating the actual result for the project. And also provide some additional values. It can be used in the
creation of performance measurable baseline 8(Ezez. 2017). This kind of baselines is achieved several
things like plan, track, and report. Sometimes it refers to the cost management applications. And also it
represents multiple activities at the same time.
 The EVM metrics are calculated by time-phased budget. EVM stands for earned value
management. It provides the details about the performance of the project, cost, status, and
schedule.
 It contains some special functional requirements. Then also projected the money flow for the
project.
 The price lateral of the business value announcement is provided by the time-phased budget.
 It can be used for explaining the details about committed spending versus actual payment,
spending limits, and approvals.
 The reverse funds are fully based on the risk plan. 6
66 (Leobacher 2006), 12
7 (Percoco 2012), 13
8 (Ezez. 2017), 8
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d) Recommendation for Contingency
Unique spending plan did not perceive the potential for value changes in the market from the time the
financial backing was finished Deficient venture data accessible when the monetary allowance was
produced. The stipend ought to be the correct size, lined up with the advancement cost display and ought
to abstain from copying dangers as of now represented in the outline and development possibilities
9(Kashyap, Heena. 2016). One of the primary dangers for proprietors is program change, so this could frame
the fundamental piece of the proprietor's possibility. Once the proprietor decides the possibilities, the
subsequent stage is to oversee them suitably.
Sensitivity Analysis
Sensitivity analysis is a kind of function that is used in the worksheet cells. It is the one of the model
which is used for analyzing the risks. The risks are later solved by risk solver using Monte Carlo simulation.
It is also used to examine the net profit, charts, graphs and statistics.
Risk events
Risk 1: the number of days increased to 20 days than the estimated date. Then the budget amount also
increased. The amount increased 143500 than the actual amount.
Risk 2: the employee inactive is the next risk in the sensitivity analysis. Because there are only a few
employees working in the actual and it is lesser than the estimated.
7
79 (Kashyap, Heena. 2016), 10
11

Figure 11 Sensitivity Analysis
From the above the sensitivity analysis for the tornado chart the most sensitivity variables are series
1 and series 2.
Tornado diagram in sensitive analysis
The tornado diagrams are also known as tornado plots or tornado charts. It is a kind of chart which
has different techniques. The largest bars are located in the above of the histogram, the next largest bar is
located at the second from the top. The tornado diagrams are mostly used for determining the sensitivity
analysis 10(Velez-Pareja 2008). We know that a tornado chart is a type of sensitivity analysis. It is used for
representing the degree in a graphical manner. It allows only the specific independent values because it
contains some sensitive results 11(HEARNE 2010). Just click the tornado chart button in the sensitive
analysis dialogue box then it automatically creates the tornado chart. It runs the series of deterministic
simulations. It allows only one independent variable at a time 12(Sullivan et al. 2014). And also this chart
contains three different values such as lower bound, central value, and upper bound. All the independent
variables are completed then the process will be completed. 8
810 (Velez-Pareja 2008), 18
11 (HEARNE 2010), 7
12 (Sullivan et al. 2014), 16
12