Project Economy: Budgeting and Key Terms

Project Economy

• Project economy involves managing limited resources.

Key Economic Terms

• Disbursement: When money is paid out.
• Receipt: When money comes in.
• Expenditure: Occurs when something is purchased.
• Income: Arises when something is sold.
• Cost: A periodized expenditure.
• Revenue: A periodized income.

Example Calculation

• A baking machine costing 500,000 kr is purchased in year 1, with payments in years 1 and 2, and has a 5-year economic lifespan.
• Expenditure: 500,000 kr
• Disbursement: 250,000 kr in each of year 1 and year 2.
• Cost: 100,000 kr per year for 5 years.

Budgeting

• A budget is an economic plan for future income and expenses.

Liquidity Budget (Quarter 1 Example)

• Tracks incoming and outgoing payments:
  • February:
    • Beginning balance: 0 kr
    • Receipts: 1,000 kr (Sales of pastries)
    • Disbursements: 700 kr (Coffee, buns, mugs)
    • Net: 300 kr
    • Ending Balance: 300 kr
  • March:
    • Beginning balance: 300 kr
    • Receipts: 500 kr
    • Disbursements: 400 kr
    • Net: 100 kr
    • Ending Balance: 400 kr
  • April:
    • Beginning balance: 400 kr
    • Receipts: 600 kr
    • Disbursements: 550 kr
    • Net: 50 kr
    • Ending Balance: 450 kr
• A liquidity budget estimates payment flows, including incoming and outgoing payments.

Income Statement Budget

• Estimates revenues and expenses to determine profit or loss.
• An example is provided with ticket sales of 5,000 kr and total costs of 3,600 kr, resulting in a profit of 1,400 kr.

Cost Budget

• Important to have a financial plan is needed to determine capital for a project, such as loans, capital, sponsors or venture capitalists.
• An example of a cost budget for the financial plan is provided:
  • Local: 500 kr
  • Scarves: 1,000 kr
  • DJ and music equipment: 1,000 kr
  • Marketing: 500 kr
  • Other costs: 600 kr
  • Total costs: 3,600 kr
  • Financiers: Sponsors like Café KP and Halsduk och Vante AB; free contacts for DJ and music equipment; school sponsors.
  • Own expenses: 600 kr
  • Overall, a total cost of 3,600 kr.

Analysis

• Conducting analyses to prepare for positive and negative events is important.

SWOT Analysis

• Internal strengths include group cohesion, diverse skills, strong network, relevant product, and young, creative team.
• Internal weaknesses include lack of experience and poor finances, risk of conflict.
• External opportunities include weather, economic boom, and trends.
• External threats include competitors, weather, and economic downturn.

Risk Analysis

• Risk analysis involves assessing probability and consequence to propose an appropriate course of action.
  • Low Risk: Alternate location is needed if a café is unavailable due to an alternate booking.
  • High Risk: Lack of project progress from project member falling sick; Document responsibilities, and assign responsibilities to other group members; contact reserves if a member of the fashion show is unwell.

Document Management

• Important to organize, manage, and store documents with assigned responsibilities and information plan.

Personal Budget

• Liquidity budget regarding private finances.
• Tracks monthly incoming and outgoing payments to determine monthly balance and ending balance.
• An example is provided with income from study grants, gifts, and salary, and expenses for food, entertainment, hygiene, clothing, and travel.