Cost Management 7.2 Determine Budget:

1. Cost Management 7.1 Estimate costs

2. Cost Management 7.2 Determine Budget

3. Cost Management 7.3 Control Costs

Cost budgeting involves aggregating estimated cost estimates for all individual activities or work packages so that a cost baseline can be established for measuring performance. The baseline includes authorized budgets and contingency reserves, but excludes management reserves (the extra amount for "unknown unknowns").

Determine Budget
Inputs	Tools	Outputs
1.       Activity cost estimates 2.       Basis of estimates 3.       Scope baseline 4.       Project schedule 5.       Resource calendars 6.       Contracts 7.       Organizational process assets	1.       Cost aggregation 2.       Reserve analysis 3.       Expert judgment 4.       Historical relationships 5.       Funding limit reconciliation	1.       Cost performance baseline 2.       Project funding requirements 3.       Project document updates

 

Seven Key inputs for Determine Budget:

1.       Activity Cost Estimates: Cost estimates for each activity within a work package are aggregated so that the cost of each individual work package is known. Work package estimates can then be aggregated at the control account level and so on.

2.       Basis of Estimates: Described in this side (includes scope, deliverables, how the estimate was created, assumptions, constraints, and an estimated range of possible outcomes). This information should also address whether indirect costs are included in the budget.

3.       Scope Baseline: The following three items form the scope baseline and contain information that is relevant to establishing the cost baseline.

·         Scope statement: The scope statement is relevant to budgeting if it identifies any constraints on the expenditure of money (such as a fiscal year that constrains when certain funds can be spent).

·         WBS: Provides a structure to organize the cost estimates into useful categories (cost accounts or control accounts).

·         WBS dictionary: Provides the detailed information of what is needed to produce the deliverables for each work package.

4.       Project Schedule: The schedule must be known to establish when specific costs will be incurred.

5.       Resource Calendars: The availability of resources affects both the cost as well as the timing of the work. This was considered previously in this site, paragraph 6.3.3.4.

6.       Contracts: Provides information on costs incurred through outsourcing of portions of the work.

7.       Organizational Process Assets: The following organizational process assets may affect cost budgeting:

·         Formal and informal cost budgeting procedures and guidelines

·         Cost budgeting tools

·         Reporting methods

Five Key Tools for Determine Budget:

1.       Cost Aggregation: Described previously. Cost estimates are established for work packages and summarized at higher levels such as control accounts or the project total.

2.       Reserve Analysis: Also discussed under cost estimating, the course slides will show an example of how reserve analysis relates to the cost baseline (at the first output below, cost performance baseline).

3.       Expert Judgment: The use of appropriate subject matter experts to improve the accuracy of the budget.

4.       Historical Relationships: Described previously for duration estimating, this technique, formerly called parametric estimating (the use of mathematical correlations), is also used for cost estimating and budgeting. As before, parametric models are most accurate when:

a.       The historical information used to develop the information was accurate

b.      The parameters in the model are readily quantifiable

c.       The model is scalable (works well for small as well as large projects)

5.       Funding Limit Reconciliation: Some organizations "reconcile" funding expenditures to prevent large fluctuations in disbursements. In some cases, this process relies on tinkering with the timing of certain activities through the use of imposed date constraints.

Three Key Outputs for Determine Budget:

1.       Cost performance Baseline: The cost baseline is a time-phased budget used to measure and monitor cost performance. The baseline is developed by summing estimated costs by time period and displaying them (often in the form of an S-curve). Large projects may have multiple cost baselines. See Figure 7-6 on this site and Course Slides #94 through #97 for examples of an S-curve and the use of reserve.

2.       Project Funding Requirements: As mentioned above, funding is not always a smooth, continuous process. The availability of the funds usually occurs in increments and disbursements may not automatically be spread evenly. Many organizations attempt to smooth the process as much as possible.

3.       Project Document Updates: Documents that may be updated include:

·         Risk register

·         Cost estimates

·         Project schedule