Unexpected expenses: particularities of counting

Prior to the approval of the budget, it is necessary to include additional costs that may arise due to any unforeseen circumstances. Unforeseen expenses represent additional means that provide the opportunity to perform various tasks that can cost more than planned or even be unplanned. For example, unforeseen costs will arise if the costs were assessed too low if the supply costs exceed the expected costs, if the task requires more time.

Also, unforeseen expenses are understood as costs that are not directly related to the production and sale of goods, including fines, fines, penalties for violation of the rules of transportation, failure to fulfill delivery obligations, manufacturing of substandard goods, compensation for losses suffered by consumers of poor-quality products, untimely Payment of supplies and so on.

Ways of calculation of unforeseen expenses

The creation of a reserve fund to cover unforeseen costs is a way to deal with risks that assess the relationship between the potential risk that affects the final cost of the project and the amount of costs that are necessary to overcome possible project implementation disruptions. The main problem in the process of creating a reserve is a proper assessment of the potential consequences of risks.

Unforeseen expenses can be calculated in several ways. For example, one of the methods is to assume that the costs that were included in the enterprise budget are most likely. Then a mechanical method of calculating the unexpected costs for each of the tasks is used. For this, a simple formula is used: 1 - (optimal costs / maximum costs) x optimal costs. The adjusted amount of unforeseen expenses is obtained taking into account the estimated costs and the most probable costs. This value is equal to the difference between the optimal costs and the maximum costs in the worst-case scenario.

The big difference between the optimal costs and the maximum costs in the worst case scenario entails the greatest unforeseen costs. On the contrary, if there is little difference between these values, then the unforeseen costs will be less.

The main problem in using this method of calculation is that it depends on the use of the estimation of the optimal costs. In fact, the use of this estimate is appropriate only when it was based on the most probable, close to optimal or optimal variant.

Often, project managers use the worst-case indicators when they believe that the tasks assigned are associated with high risks. Then unforeseen expenses should be calculated by other methods.

An alternative settlement method for estimating other costs, including unforeseen ones, is to add 10 percent reserve beyond the budget required for the project.

After the implementation of the project, for which the reserve was allocated, you can compare the actual and planned distribution of costs. Based on the data obtained, you can identify trends in the use of the allocated amount. The unused portion can again be returned to the reserve for the implementation of another project. It is important to note that all sections of the use of the reserve should be registered, and also prepared periodically reports and reports about them with other information on the cost of the project.