7.3 Determine Budget

Up one level

"The process of aggregating the estimated costs of individual activities or work packages to establish an authorised cost baseline."

The definition shown above in italics is taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013 Figure 7-6 Page 208

Bottom Up Cost Aggregation

A calenderised budget allows measurement of cost performance throughout the project life cycle.
Created by adding the estimated costs of project elements by time period.
Frequently shown as an S-curve

Estimating Effort

Physical Resources

Hiring costs per time period (JCB digger for 3 months)
Buying costs if cheaper to buy, then sell at the end
Meeting rooms
Work from home – provision of infrastructure / risks assessments

People Resources

Outsourced – external consultants/specialists
Day rate / per hour rate / job lot fixed rate
Overheads – support staff

Funding Limit Reconciliation

Stating the funding required at particular times
Adjusting spending, scheduling, and resource allocation - to bring expenditures into line with budget constraints
Living within your budget for each time period of the project

Example: A customer wants to spread project costs of £1,600,000 over two half years. This is one way how it could be done:

£550,000 during HY1
£1,050,000 during HY2

Contingency Reserves

Guidelines:

Avoid contingency on contingency.
Inform the project team that the project will be managed against a point estimate without contingency.
Release contingency funds only through a closely controlled and well-documented process.

Example:

Contingency allowances for the 2012 Olympics, hosted by London, could have included funds for an unforeseen problem, such as extra number of large beds required in the athletes village due to an unexpected number of tall athletes arriving.

Building a Cost Budget

Put Slightly Differently

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013 Figure 7-8 Page 213

Output: Project Cost Baseline (PCB)