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Homework answers / question archive / accountants to allocate a project’s estimated costs evenly over the duration of the task, what danger might this pose for a project manager who faces the following situation? The major task for a $5 million project is budgeted at $3 million, mostly for highly complex and expensive equipment
accountants to allocate a project’s estimated costs evenly over the duration of the task, what danger might this pose for a project manager who faces the following situation? The major task for a $5 million project is budgeted at $3 million, mostly for highly complex and expensive equipment. The task has a six month direction, and requires the purchase of the equipment at the beginning of the task to enable the project team to conduct the activities required to complete the task. The task begins December 1.
Answer:
The accountant would likely assume that the $3,000,000 is to be allocated evenly over the six month duration of the task or $500,000 per month. However, most of the $3,000,000 will likely be incurred at the beginning of the task when the equipment must be acquired and paid for.
The problem for the PM is that the accountant will expect a $500,000 charge in the first month of this task but will see an expenditure of close to $3,000,000! Based on this the accountant and top management may become alarmed in terms of the project being completed on budget.
