However the above mentioned studies will not be discussed in details. This paper will only evaluate the effectiveness of using cost estimations and budget in financial management project of the two companies.
Project financial management is a process which brings together planning, budgeting, accounting, financial reporting, internal control, auditing, procurement, disbursement and the physical performance of the project with the aim of managing project resources properly and achieving the project's development objectives (world bank group). Financial management is the main character for the success of a project process. An accurate and relevant financial information provides a basis for better decisions, thus speeding up the progress of the project and the availability of the funds. An effective financial management provides the following:
An effective financial management system is vital for projects because of the need to deliver services to target groups quickly over a large geographic area to a wide variety of stakeholders. One of the tools in financial management that is widely used is the Cost estimation and budget. Budgets are the financial work plan for projects, programs and organizations. Budgets that work are based on realistic assumptions, use good cost estimates and come from organizational processes that include board and staff members (J. Rouse, P.Rouse).
Project financial management processes are organized into five groups of one or more processes each:
Initiating processes-authorizing the project or phase.
Planning processes-defining and refining objectives and selecting the best of the alternative courses of action to attain the objectives that the project was undertaken to address.
Executing processes-coordinating people and other resources to carry out the plan.
Controlling processes-ensuring that project objectives are met by monitoring and measuring progress regularly to identify variances from plan so that corrective action can be taken when necessary.
Closing processes-formalizing acceptance of the project or phase and bringing it to an orderly end.
Cost Estimations and Budgets
In the financial management done by the ISS (International Space Station) for NASA has shown that the cost growth is contributed to many factors that are beyond the control of the project manager. The Project Manager was not able to clearly communicate the justification for his budget requests and the rationale for the cost growth because NASA has lacked a single standardized accounting system and the program has not developed and maintained a baseline lifecycle cost estimate. Past efforts to control costs through budgetary constraints have failed to achieve their stated purpose and have probably exacerbated the cost growth.
The Arizona Department of Transportation (ADOT) was not able to determine the reasons for the cost increases because the data is not readily available from the Federal Highway Administration.