Project Management

Project Cost Management: Determining Your Budget

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A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts. Written by Elizabeth Harrin from

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The last part of this ongoing series on project cost management looked at the estimating process. Today we’re going to look at how to determine your budget.

What’s the process for?

This process is where you establish the overall cost of the project. At the end of the process you’ll have the following outputs:

  • Cost baseline
  • Project funding requirements
  • Project documents updates (these crop up in lots of processes and simply mean that you update any other documents that need to know the overall project budget).

So what goes into creating a budget?

The inputs

You’ll need lots of information in order to start putting together your overall project budget. There are 9 inputs to this process and they are:

Cost management plan

The cost management plan sets out how you are going to manage the project’s finances, and it helps to give you the framework for creating your budget.

Scope baseline

This is essential for working out how much the project will cost – you can’t do the calculations unless you know what is in scope. Use the scope baseline to make sure that you don’t forget to cost any elements of the project. Your Work Breakdown Structure is a massive help here and probably the document that I would rely on the most to ensure everything is accounted for.

Activity cost estimates

These tell you how much effort and money is required for each activity, building on the detail in the scope baseline. You can already see how adding these up is going to give you the overall project budget, so it pays to do the work in earlier processes to get these as good as you can.

Basis of estimates

This just explains the assumptions around your estimates. It’s useful when it comes to the overall project budget because it helps you determine what, if any, contingency you should add. These assumptions are often circulated with the final budget because they help other people understand if things like indirect costs are included.

Project schedule

This is helpful if you have to account for work phases. You could, for example, create a budget for the first stage of the project and then a second budget for the next chunk of activity. These would then be added together to give you your overall budget. If your sponsor only wants to authorise the initial work you can use the schedule to establish what should be in and what should be out of that.

It can also be useful if you are expected to calculate the project’s costs in any given financial year or reporting period. Roll up the estimates into date-constrained packages to give you the total cost over a certain time.

Resource calendars

These are only really useful if you have to include resource costs in the project budget. If you are working mainly with internal resources you’ll find that you don’t often need this data. However, if you are cross-charging a client for your time then you’ll definitely find it helpful to check who is working on what and what their daily rate is.

Risk register

The risk register may include details of the cost of risk mitigation activities. Pull these out and put them in your project budget as well. Many a project comes unstuck because risks were identified but there was no money put aside to mitigate potential problems.


These are the contracts relating to what goods and services you require as part of this project. They may also relate to things that have already been purchased. These costs also need to be included in the budget and having the original documents can help because it’s useful to cross-check to see what taxes, delivery charges and other elements have been added in to the quote.

Organisational process assets.

These appear as an input to lots of processes but in this scenario we are referring to:

  • Budgeting policies that will help you budget in accordance to your company’s guidelines
  • Tools such as spreadsheets or accountancy packages, or your project management software
  • Reporting processes or tools to report the budget once it’s finalised.

Tools and techniques

The tools are techniques for the Determine Budget process aren’t rocket science. In fact, the whole process is really about adding up your estimates, making sure nothing is overlooked and then presenting the total as a summary figure.

Having said that, it does help to work through the process because it is remarkably easy to overlook something and getting the budget wrong is embarrassing (trust me, I’ve been there).

The tools and techniques you can draw on to prepare your project budget are:

  • Cost aggregation
  • Reserve analysis
  • Expert judgement
  • Historical relationships
  • Funding limit reconciliation.

I cover these in more detail in this video on 5 tools for project budgeting.

The end result

The main output of this process is the cost baseline. This is the approved, time-phased budget for the project but it does not include management reserves. You use this cost baseline as a snapshot in time and compare it against actual expenditure.

What works for you when preparing your final project budget? Let us know your tips in the comments.

Posted on: December 02, 2014 10:00 AM | Permalink

Comments (4)

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Nice post, Elizabeth. And very nicely done video!

Thanks, Andy. Glad you enjoyed it.

Video excellently portrayed the Tools & Techniques involved.

Thanks, Bindu! Glad you found it useful.

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