This article contains most of the important information you need to know about Determine Budget process in order to answer questions related to this topic in the PMP Exam, I recommend you review this type of articles 1 week before your exam date, all information mentioned are based on PMBOK Guide 6th edition and PMP Exam Prep 9th edition for Rita Maclhy’s, ITTO refers to Inputs, Tools & Techniques and outputs.
This process is a part of Planning Process group and Cost Management Knowledge Area with the following ITTO’s
- Project management plan (Cost and resources management plans , Scope baseline )
- Project Documents (Activity Cost estimates , Basis of estimates ,Project Schedule and risk register )
- Organization process assets
- Business documents ( Business case and benefit management plan )
- Enterprise Environmental factors
Tools & Techniques:
- Cost aggregation
- Data Analysis ( Reserve Analysis )
- Expert Judgment
- Funding limit reconciliation
- Historical Relationships
- Cost Baseline
- Project funding requirements
- Project Document Updates ( Cost estimates , project schedule , risk register )
- It’s the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline .
- Project budget includes all the funds authorized to execute the project .
- Here the project manager calculates the total cost of the project in order to determine the amount of funds the organization needs to have available for the project, it results with the “ Budget “ .
- Cost baseline is a portion of the budget and meeting the cost baseline will be a measure of project success.
- Cost Budget is how much money the company should have available for the project.
- Reserve Analysis addresses management reserves ( Unknown unknowns ) and Contingency Reserves ( Known unknowns )
- Cost aggregation , To create budget , activity costs are rolled up to work packages cost , work package costs are then rolled up to control accounts costs and finally to project costs , this process called cost aggregation .
- Contingency reserves are added to determine the cost baseline, and once the final set up is ready management reserves are added to create the project budget.
- When management reserves are used in the project they are added to the project cost baseline.
- Usually cost baseline and project budget are expressed in S Curve.
- Funding limit reconciliation, Now once you project budget is clear , it is the time to check the cash flow , funding , may be not available causing changes to other parts of the project . then reconciliation with any cost constraints in the charter , if the project estimates exceeds the constraints the project manager has to meet with management to decrease costs.
- Cost Baseline = Project Estimates + Contingency Reserves
- Project Budget = Cost Baseline + Management Reserves.
- Once the project manager comes up with the cost baseline and project budget, It should be compared with expert judgment and historical records estimates in order to justify significant differences.
- Total funding requirements and periodic funding requirements are derived from the cost baseline .