Determine Budget Tools and Techniques

The Determine Budget process has five tools and techniques, including two you haven't seen before:

■ Cost aggregation

■ Reserve analysis

■ Expert judgment

■ Historical relationships

■ Funding limit reconciliation

I've covered expert judgment previously. Let's look at the remaining tools and techniques.

Cost aggregation Cost aggregation is the process of tallying the schedule activity cost estimates at the work package level and then totaling the work package levels to higherlevel WBS component levels (such as the control accounts). Then all of the costs can be aggregated to obtain a total project cost.

Reserve analysis We talked about reserve analysis in Chapter 4 as it pertains to the project schedule. Reserve analysis works the same for the Determine Budget process, only you're planning contingency reserves for unplanned project scope and project costs. Reserves are not included as part of the cost performance baseline (an output of this process) but should be included in the project budget. Reserves are also not considered when calculating earned value measurements.

Reserve analysis should also contain appropriations for risk responses. I'll talk about several categories and tools of Risk Response Planning in

Chapter 6. Additionally, you'll want to set aside money for contingency reserves for unknown risks. This is for the unforeseen, unplanned risks that might occur. Even with all the time and effort you spend on planning, unexpected issues do crop up. It's better to have the money set aside and not need it than to need it and not have it.

Historical relationships Analogous estimates and parametric estimates can be used to help determine total project costs. Remember from Chapter 4 that analogous estimates are a form of expert judgment. Actual costs from previous projects of similar size, scope, and complexity are used to estimate the costs for the current project. This is helpful when detailed information about the project is not available or it's early in the project phases and not much information is known.

Parametric estimates are quantitatively based and, for example, multiply the amount of time needed to perform an activity by the resource rate to determine total cost. This technique can be very accurate when the data you're using is reliable.

Funding limit reconciliation Funding limit reconciliation involves reconciling the amount of funds to be spent with the amount of funds budgeted for the project. The organization or the customer sets these limits. Reconciling the project expenses will require adjusting the schedule so that the expenses can be smoothed. You do this by placing imposed date constraints (I talked about these in the Schedule Development process in Chapter 4) on work packages or other WBS components in the project schedule.

The goal of Determine Budget is to develop a cost performance baseline (an output of this process) for the project that you can use in the Executing and Monitoring and Controlling processes to measure performance. You now have all the information you need to create the cost performance baseline. In addition, you'll establish the project funding requirements. The following are the outputs of the Determine Budget process:

■ Cost performance baseline

■ Project funding requirements

■ Project document updates

We've covered the project document updates in other processes. For Determine Budget, you may need to update the risk register, cost estimates, and/or the project schedule. Let's look at the other two outputs next.

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Project Management Made Easy

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