Determine Budget Process

Posted on March 13, 2009 by

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Determine Budget is one of the 42 project management processes described in the fourth edition PMBOK®. It’s one of the three Cost knowledge area processes, and one of the twenty Planning processes. The purpose of this process is to add up the estimated costs of the project activities in order to create the budget. These cost estimates and their explanations are found in Activity Cost Estimates and Basis of Estimates, which were outputs of the Estimate Costs process. Cost Aggregation is the fancy term for simply adding up these estimated costs. Additionally, there are a few other documents that are good to reference when developing the budget—the Scope Baseline, Project Schedule, Resource Calendars, and Contracts. The Scope Baseline should be referenced for mention of funding constraints. Assuring that the budget is within these funding constraints is called Funding Limit Aggregation. The Project Schedule and Resource Calendars are used as a basis for knowing how much to budget for different calendar periods of the project. For example, costs may be low for the first couple months, but according to the calendar, in the third month a substantial amount of material may need to be purchased and specialized labor hired, so more funds will be budgeted for that time. Contracts associated with the project should also be examined for agreed-upon costs.

While developing the budget, having some information available on relevant past costs is called Historical Relationships, and taking advantage of someone’s expertise in the area is called Expert Judgment.

The major outputs of Determine Budget are the Cost Performance Baseline and Project Funding Requirements. The Cost Performance Baseline is usually a graph illustrating the budget over the length of time of the project. It does not include reserves which are funds set aside in case they are needed. Please see the earlier posting of Reserve Analysis.  Project Funding Requirements, however, includes the cost baseline in addition to any reserves.