Now that you have already created an activity list, estimated the product/ project schedule baseline and have your network diagrams in place; as a member of the planning process, you now need to determine the cost estimates for all activities. It’s the resultant determine budget that will help you convert individuals activity costs into the budget. Remember, in PMBOK, budget is not merely a sum of money that has been set aside for a project initiative but a baseline for cost performance a detailed description of the project spend as mapped back in terms of the time calendar. Take a look.
Determine Budget – A Cost Plan
By using the estimated project costs and aligning them with the dates on your project calendar, you can create the cost performance baseline that specifies the costs that will be incurred, and the expected time of the same. Pre-defined knowledge about expected costs helps organizations plan cash flows in advance and ensures ready supply of funds for the different stages of a project without investing large amounts for the whole duration of the project.
Inputs of Determine Budget
Activity cost estimates
Providing detailed cost information with regards to each scheduled activity, this input allows for the total cost estimate of every single work package.
Basis for estimates
This input accompanies all activity cost estimates and details assumptions, approach, and the reasons determining the same. Accurate cost estimates for each activity leads to the proper estimation of the entire budget.
Consisting of the WBS dictionary, WBS, and project scope statement, the scope baseline describes all the requirements, constraints, boundaries, and reasons for the project.
The project schedule
The cost performance baseline/ spend plan takes the help of the project schedule to determine when and what costs will be incurred.
Resource calendars define the time of use as well as the availability of various resources to determine the budget effectively.
The terms of a contract, if used, specifies human / non-human costs and constraints that are helpful for determining the budget for a project.
Organizational process assets
While calculating the budget, the company’s procedures, policies or guidelines must be used along with inputs on the use of software applications and protocols of representing financial information. This knowledge about organizational process assets comes in very handy.
Outputs of Determine Budget
Human resource, equipment, materials, and different labor rates are some cost categories that affect the cost performance baseline. As per the cost/time plan graph given below, the rate of spending is slow in the beginning and takes a sharp upward turn in the execution phase, only to become smoother towards the fag end of the project. This gives the graph a typical ‘S’ shape:
Determine Budget –Project Funding Requirements
Referring to the planned expenditures of the project, this requires budget or cash inputs as ‘chunks’, all at the right time for funding the different spend periods. However, the cash-flow needs and fund requirements of the project need to go hand in hand for better success.
Project Document Updates
For more accurate calculations of actual project cost requirements, it becomes essential to update the already existing documents in terms of resources, activities, the project scope, as well as the scheduling aspects of a project. Historical data may prove to be misleading and deliver the wrong conclusions.
Tools for Determine Budget Process
After cost estimates are ready, they have to be aggregated to get the correct total for the proper control and management of the work package level. The other levels of cost aggregation include internal/external accounting departments, accounting node points of WBS, and so forth.
Also referred to as the contingency/ management reserve, this risk budget forms an important part of the overall determine budget process and is calculated as a percentage basis. It may be applied only to work packages/ activities with high risk.
The experience and skills of individuals (with regard to similar previous activities) helps in formatting the project budget and is essential for generating accurate time/ cost estimates.
Referring to the parametric estimates linked to historical data, this tool is implemented by factoring the expenditures of project activities and then multiplying them on the basis of the ratio of current processes.
Funding limit reconciliation
In tune with the fiscal budgeting approach existing within an organization, there may be an allocation of some fiscal budget limitations, prior to the stage of project planning. The act normally impacts the project with respect to the spending window/ activities and considers if those activities can be implemented profitably. These limitations often result in the delayed implementation of some tasks, thereby extending the entire duration of the project.
In a nutshell, Determine Budget (Planning Process Group) helps you assess how much your project will cost, and how!
Author : Uma Daga