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164 CONCEPTS AND ISSUES OF BUDGETING

with preparing proposals or developing offerings should be
accumulated and inserted into the project cost database. Like-
wise, there are often costs associated with project closeout
that are not accounted for. The budget should allow for proj-
ect closeout costs, including punch list items and disposition of
resources and assets.

Functions and Subsystems Associated with Cost Management

There are several functions and subsystems that are often associated with cost
management. Some are erroneously believed to be the equivalent of cost man-
agement, but fall short of satisfying the full requirements. Rather, they are only
elements of a full-fledged cost management system.

Project accounting is not cost management. Most often, a project accounting sys-
tem is no more than assigning an ID number to each authorized project so that
costs can be allocated to projects. There is no budgeting within the project and
there is no facility to evaluate performance or to know whether anything is wrong.

Activity-based costing (ABC) is a process wherein the budgeting and cost collec-
tion are associated with the defined workscope. It provides for much more detail
than project accounting, facilitating greater control and performance. ABC is
heavily promoted by Dekker, Ltd. Dekker TRAKKER is a product that integrates
many project management and project accounting elements, and facilitates inte-
gration of project management with Generally Accepted Accounting Practices
(GAAP). ABC is very useful when you need to perform detailed costing and profit
analyses, down to a deep level of the various breakdown structures.

Work Breakdown Structures (WBS) is a protocol that facilitates the building of
a hierarchical structure of the work. The project is broken down into several
levels, as in an organization chart. This allows data analysis and reporting at
any level of detail. WBS is an essential component of an Earned Value analysis
system.

Earned Value analysis (EVA) is the term used to describe project performance
analysis. In using the EVA protocol, the Cost Variance (CV) can be determined
for any segment of the project. The CV is based on “what did it cost to do the
work that was accomplished.” In the absence of EVA, accountants often produce
a CV that expresses actual costs vs. planned cost. This means nothing, as the