5th Edition PMBOK® Guide—Chapter 7: Process 7.3 Determine Budget


After all the estimation done in process 7.2, it is now time to determine the budget, and that’s what this process does. The purpose of this post is to give a general overview of the inputs, tools & techniques, and outputs associated with this process.

1. Inputs

Obviously the most important inputs to the process 7.3 Determine Budget are the estimates determined in the previous process 7.2 Estimate Costs. Other important inputs come from other knowledge areas such as Scope, Time, Human Resource, Risk, and Procurement Management.

7.3 DETERMINE BUDGET
INPUTS
1. Cost Management Plan This is an output of process 7.1 Plan Cost Management.
2. Scope Baseline The scope management plan has three components of the scope baseline:

  • Project Scope Statement (output of 5.3 Define Scope)
  • WBS (output of 5.4 Create WBS)
  • WBS Dictionary (output of 5.4 Create WBS)
3. Activity Cost Estimates The cost estimates of each activity within a work package are aggregated or “rolled up” to get a cost estimate for each work package as a whole. This is an output of process 7.2 Estimate Costs.
4. Basis of Estimates Details supporting the activity cost estimates (input #3). This is another output of process 7.3 Estimate Costs.
5. Project Schedule This is used to assign costs to the calendar period in which they are scheduled to occur. This is an output of process 6.6 Determine Schedule.
6. Resource Calendars This is used to indicate resource costs over the duration of the project.

This is an output of the Human Resources Management process 9.2 Acquire Project Team.

7. Risk Register Used to aggregate costs for risk responses to obtain the contingency reserves for the project. This is an output of process 11.2 Identify Risks.
8. Procurement Agreements This is used for products, services or results that are purchased from suppliers or vendors in order to complete the project. This is an output of Procurements Management process 12.
9. OPAs
  • Cost budgeting policies, templates, guidelines
  • Cost budgeting tools
  • Cost reporting formats
TOOLS & TECHNIQUES
1. Cost Aggregation Cost estimates of work packages in the WBS are aggregated or “rolled up” at higher levels (including control accounts) and then finally for the entire project.
2. Reserve Analysis This establishes the contingency reserves and management reserves for the project.
3. Expert Judgment Guidance in the area of determining the budget by those with expertise. This expertise can come from project team members, outside consultants, stakeholders (including customers), or professional or industry associations.
4. Historical Relationships These are used to develop analogous or parametric estimates.
5. Funding Limit Reconciliation The expenditure on the project needs to be reconciled with the funding limits on the commitment of funds to the project, and the timing of these commitments.
OUTPUTS
1. Cost Baseline The approved version of the time-phased project budget. Management reserves are not included in this cost baseline. The management reserves plus the cost baseline give the project budget.
2. Project Funding Requirements The funding for the project may occur in periodic increments, which may place time constraints on work to be done in the project schedule.
3. Product Documents Updates
  • Risk register
  • Activity cost estimates
  • Project schedule

2. Tools & Techniques

Cost aggregation of the work packages gets you to the cost estimate of the project. If you add the cost of risk responses or contingency reserves, you get the cost baseline of the project. If you add the management reserves, which are not controlled by the project manager but by management, to the cost baseline, you get the cost budget.

If the funding for the project is not entirely available at the beginning of the project, but is available in periodic increments, then these project funding requirements of how much funding is released and at what point in the project need to be paid attention to so that the project does not temporarily run out of funding. Thus if the project is ahead of schedule, which is normally a good thing, and it gets too far ahead of schedule, the project may temporarily run out of funding until the next increment is available. This in a way is similar to resource leveling, but in this case the resource is not the work of a specific person on the project, but the funding for the project itself.

3. Outputs

The cost baseline is the performance baseline for costs against which the actual performance of the project is measured when the actual costs of the project at any given time are known.

The project funding requirements are an important output, because they may require the project schedule to be adjusted to the necessities of the periodic project funding requirements.

For that reason, the project schedule may be updated as one of the outputs. The activity cost estimates may be adjusted to reflect contingency reserves, and this information may also be updated in the risk register.

In the next post, I will review the three different figures of the cost estimate, cost baseline, and project budget and how they relate to the contingency and management reserves.

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