#PM Cost Management—A Closer Look at the Inputs to the Determine Budget Process


1. Introduction

Yesterday’s post did a quick overview of the cost management process 7.1, Determine Budget, in terms of the following two stages.

Stage 1: The individual estimates for activities developed in the previous process Estimate Costs are summed up or “rolled up” to the level of work packages, control accounts, and then finally the project estimate.

Stage 2: The project estimate then adds indirect costs if that is required. Contingency reserves are then added for those risks on the risk register to get the cost baseline, which is what the performance of the project will be measured against using earned value an analysis. Management reserves are then added for those unknown risks which on not on the risk register, and this is the overall cost budget (project manager has authority to use contingency reserves; only management has authority to use management reserves).

However, there is an additional stage to the Determine Budget process:

Stage 3: Once the overall cost budget is available, then the budget has to be time-factored to account for the fact that the funding of the project may not be 100% available before the project starts, but rather may come available periodically during the course of the project. This cost restraint may cause additional time to be added to the schedule if funding for a certain portion of the project is not available by the date it was originally scheduled.

Fig. 1 Three Stages of the Determine Budget Process

Today’s post will take the inputs of the Determine Budget process and relate them to the various stages in the process referred to above.

2. Inputs to Determine Budget

I have listed the inputs to the Determine Budget process, but have organized them and color-coded them based on the scheme of the diagram above so that you can see what inputs are for which stage in the process.

Name of Input Used for … Explanation
1. Activity Cost Estimates Stage 1 Activity costs estimates are used to roll up into work packages.  (This is an output of process 7.1 Estimate Costs.) 
2. Scope Baseline (includes WBS) Stage 1 Work packages and control accounts are used to roll up into project budget.
3. Contracts Stage 1 Costs of work packages that are contracted out as procurements. 
4. Basis of Estimates Stage 2 (indirect costs) Indicates whether indirect costs are to be added after direct costs of project.  (This is an output of process 7.1 Estimate Costs.)
5. Organizational Process Assets Stage 2 (contingency reserves) Project document updates include risk register, which contains reserve analysis results from process 7.1 Estimate Costs.  (This is an output of process 7.1 Estimate Costs.)
6. Project Schedule Stage 3 Planned start and finish dates for activities, milestones, work packages, planning packages, and control accounts.
7. Resource Calendars Stage 3 Schedule of when resources are available during course of project schedule.

As you can see, some of the inputs (1, 4, and 5) come from the outputs of the cost management process 7.1 Estimate Costs, whereas the others come from the outputs of

  • scope management (input 2, Scope Baseline, comes from process 5.3 Create WBS)
  • time management (input 6, Project Schedule, comes from process 6.5 Develop Schedule)
  • human resource management (input 7, Resource Calendars, comes from process 9.2 Acquire Project Team)
  • procurements management (input 3, Contracts, comes from process 12.2 Conduct Procurements)

This shows how intricately interwoven the processes are from the different knowledge areas.

With these inputs, the Determine Budget process is conducted, which is the subject of the next post.

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