Background to the Problem:

The small business, specializing in custom woodwork for commercial and residential projects, operated in a highly competitive market in South Africa. While the company had a reputation for delivering highquality woodwork, it was facing significant challenges related to project cost management. Several factors contributed to the problem:

The construction and woodworking industry in South Africa had been experiencing a steady increase in material costs due to factors such as inflation, currency fluctuations, and supply chain disruptions. These rising costs were putting pressure on the business's profit margins. Many of the business's clients had tight budgets for their projects, and there was increasing pressure to deliver quality work within these constraints. Failing to do so risked losing clients to competitors. The company's procurement practices were inefficient and ad$-$hoc. They often purchased materials on a project$-$byproject basis without considering long$-$term cost$-$saving opportunities or building strong supplier relationships. It was also noted that the business had not implemented any significant risk mitigation strategies for potential disruptions in the supply chain. This left them vulnerable to fluctuations in material availability and prices.

Confronted with numerous obstacles, the enterprise acknowledged the necessity of implementing a

Confronted with numerous obstacles, the enterprise acknowledged the necessity of implementing a thorough strategy for managing project costs and procurement. In addition to these difficulties, it is imperative for the company to establish a specialized, state$-$of$-$the$-$art workshop. They have decided to bear the following expenses: materials $(R30,000),$ labor $(R25,000),$ equipment $(R50,000),$ and permits $(R20,000),$ along with a contingency fee of $10\%.$ They are cognizant of the fact that effectively addressing these matters is essential for their long$-$term viability and expansion. Consequently, the leadership has chosen to engage the expertise of Business Coach Consulting Services, wherein you are employed as a business consultant and strategic project advisor.

QUESTION $3$

Analyze the underlying factors that led to the persistent rise in material costs and the inefficiencies in procurement practices within the South African industries. Explain how these factors directly affected the business's capacity to effectively manage project costs and adhere to tight budget constraints.

QUESTION $4$

In many projects, there is often a noticeable difference between the estimated project cost and the cost oudget, with the cost budget being set at $20\%$ more than the initial project cost estimate of $R137,500.$

$4\mathrm{.}1$ Explain why this difference exists and how the cost budget is determined.