What makes up your overall project budget?
From the The Money Files Blog
by Elizabeth Harrin
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 RebelsGuideToPM.com.
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The project budget isn’t just one big lump sum of cash. It’s made up of various different components, and if you understand how it all fits together then it’s easier to manage it.
The diagram in A Guide To The Project Management Body of Knowledge (PMBOK Guide) – 5th edition, which I have adapted here, does a good job of explaining the component parts. I find it easier to read it from left to right.
You start with the activity cost estimates. These are the estimates for the money needed to deliver each individual task, and if necessary you add on contingency for those tasks at task level.
The activity cost estimates grouped together into work packages + contingency gives you the budget for each work package. If you need to add contingency at a work package level as well then add it on here. Just be aware that if you’ve got contingency at task level too then you might be padding the budget unnecessarily.
Work package cost estimates + work package level contingency gives you the total for your control accounts, if you use them. If not, it gives you the cost baseline for the project. That makes sense: it’s the cost of all the work packages added together with any contingency included too.
At this point you might add additional management reserves to deal with any problems. This is added to the cost baseline but kept separate: it’s not funds you can draw on easily and you’ll need to work out a process for getting hold of that money if you need it (normally you’ll use the change control process).
The overall cost baseline + management reserves gives you the project budget to track against.
Personally I would also track at lower levels so that you can see which elements of your project budget are going over or are under spent. Otherwise you risk spending all your funds early in the project without actually knowing if you have enough to get through all the work (but budget tracking is the subject of another article).
Do you think this is a comprehensive view of your project budget? Are there any elements that you don’t use (or use in addition to this)? Let us know in the comments.
Posted on: January 06, 2015 04:51 AM |
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