- By Sean Whitaker
The Determine Budget process is a planning process that takes the individual activity cost estimates and aggregates them into a total project cost, then applies the project schedule to determine the timing of when costs will be incurred in order to develop the project budget, or cost baseline.
The Determine Budget process covers the following domain task:
2.3 Develop a budget plan based on the project scope using estimating techniques, in order to manage project cost.
The inputs used in this process take the individual cost estimates and aggregate them into the project budget.
Cost management plan
The cost management plan is used as a key input into the Determine Budget process because it is the cost management plan that sets out the processes, policies, rules, and regulations that you are going to apply in order to determine a project budget. The cost management plan is an output from the Plan Cost Management process.
The scope baseline is a very important input into this process because it outlines all the work to be done, and the work not to be done, as part of the project. It is by breaking the scope baseline down into its component parts via the work breakdown structure (WBS), and subsequently down to activity level with the schedule work, that you are then able to estimate individual activity costs. The scope baseline consists of the project scope statement, the work breakdown structure, and the WBS dictionary, and it is an output from the Create WBS process.
Activity cost estimates
The activity cost estimates provide you with individual estimates of cost for identified activities by using a variety of tools and techniques from the Estimate Costs process. In order to put together your project budget you will take these individual activity estimates, aggregate them, and determine the time period in which those costs will be incurred. The activity cost estimates are an output from the Estimate Costs process.
Basis of estimates
The basis of estimates is an important input because it provides further information about each of the estimates you have determined for the individual activities. The basis of estimates is an output from the Estimate Costs process.
The project schedule is used as an input into the Determine Budget process because you need to know when each activity will be performed so that you can determine when the costs of activity will be incurred. This is the essence of developing a project budget, which is taking the project costs and applying them over time. The project schedule is an output from the Develop Schedule process.
The resource calendars are used as an input into the Determine Budget process because they provide additional and more detailed information about when specific resources are available to work on the project. They are an output from the Acquire Project Team process.
The risk register is used as an input into this process because it will identify risks associated with both individual activity cost estimates and elements of the project schedule that need to be taken into account when developing the project budget. It is an output from the Identify Risks process.
Any existing agreements are used by the project manager as an input into this process, because they will outline any agreement between parties to the project about costs, payments, and any other matters, such as retention payments, that need to be included in the project budget. For example, you may have an agreement for paying suppliers that requires payment regularly each month, or one that requires progress payments at certain project milestones. These agreements are an output from the Conduct Procurements process.
Organizational process assets
The specific organizational process assets that can assist in the development of the project budget include any organizational policies and procedures relating to the development and presentation of the project budget, and any blank templates for preparing budgets and for reporting the budget.
Tools and techniques
The five tools and techniques of this process are all used upon the separate inputs to deliver the process outputs.
Cost aggregation is the process of taking the individual estimates for each of the activities and aggregating upward to work package level, then rolling these estimates up to high level, sub-deliverable level, and deliverable level, in order to arrive at a bottom-up estimate for portions of the project or the entire project. Figure 5-2 shows how individual activities are added up, or aggregated.
Figure 5-2 In bottom-up cost aggregation, individual activities are added up, or aggregated.
The reserve analysis is the method of looking at both the contingency reserve and the management reserve required for the project and the timing of access to those reserves. Contingency reserves will be identified for specific activities, and access to the contingency reserve for this will be required when the activity is being performed. Access to the management reserve could be required at any time in the project because it is for the purpose of unknown unknowns, or for elements that could not reasonably have been foreseen.
Again expert judgment is a key tool and technique in determining the budget. The experts should be from the project team and also from outside the project team; for example, from the organization’s finance or accounts department.
If the organization is mature enough to have been recording information about historical relationships and the reliability and range of uncertainty in its cost estimating process, it can then use this information to further refine its current cost estimates, or to acknowledge a quantifiable amount of uncertainty in those estimates.
Funding limit reconciliation
As part of the Determine Budget process, you may find that there are funding limit reconciliation issues that need to be considered. For example, you may want to do a great amount of work but simply might not have the funds until a later period in time; therefore, you will have to limit the activity on the project until funds to complete the work become available.
The major outputs from the Determine Budget process are the following.
The cost baseline is one of four baselines that you will use to measure progress on the project. The other three are the scope baseline, the time baseline, and the quality baseline. The key element of the cost baseline is that it takes the aggregated individual estimates of cost for each activity and applies them to the time periods in which the costs will be accrued. This is the baseline against which you are going to measure project cost performance. Figure 5-3 shows an example of a cost baseline represented graphically. It shows the total amount of spend for each time period, in this case in months. Additionally, it shows the cumulative spend over the life of the project. This is represented by the line, which is often referred to as the “S-curve” (it is in the shape of the letter S) because there is little spend at the beginning of a project, a lot of spend in the middle section of the project, and a decrease in spending toward the end of the project.
Figure 5-3 This cost baseline shows the total amount of spend for each month.
Project funding requirements
The project funding requirements acknowledge when the funding for the project will be available; for example, annually, quarterly, or monthly. This recognizes that funding for a project often occurs in incremental amounts, whereas expenditure on a project may be continuous.
Project documents updates
The types of project documents that may be updated as a result of the Determine Budget process are the individual cost estimates, project schedule, and risk register.