Introduction

Cost Budgeting involves aggregating the estimated costs of individual schedule activities or work packages to establish a total cost baseline for measuring project performance. The discussion of this concept:

 Defines Cost Budgeting and identifies what should be included in a cost budget;

 Describes how to apply cost aggregation and funding limit reconciliation; and

 Explains how to complete a cost budget.

Although the cost manager may be able to calculate a total budget based on assigned resources early in the project, it is important for the project manager to determine when money will be spent during the project life cycle.

The timing of these planned costs will require other parts of the organization to coordinate so that the costs can be properly funded and paid for on a timely basis.

A time-phased budget defines the amount of money to be spent during specified time periods on specific cost line items. A time-phased budget is required for the project manager to perform the necessary calculations to track and forecast project performance. Cost budgeting techniques are used to allocate these planned costs over periods of time in order to create a time-phased budget.

Once the time-phased budget is approved, it becomes the project cost baseline.

Cost Management Processes - Cost Budgeting

Cost Budgeting occurs after Cost Estimating. Many projects start with a total budget before the specifics of a project are defined, but in many cases, these preset budgets may be reconsidered after cost estimation occurs. Cost budgets are also frequently adjusted in response to other Project Management processes, illustrating the iterative nature of project management processes.

On some projects of smaller scope, cost estimating and cost budgeting are so tightly linked that they are viewed as a single process that can be performed by a single person over a relatively short period of time. There are distinct processes being applied, however, as the inputs, tools and techniques, and outputs for each are different. Early scope definition is critical to both processes, as the ability to influence project cost is greatest at the early stages of the project.