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Chances are that sometime in your career you started planning a project and someone handed the budget before you had completed the planning. You probably learned the hard way that you should be given a budget after the planning process and that the project manager is the person should request the amount. The budgeting process outlined in PMI's Guide to the Project Management Body of Knowledge is the means you should use to create your project budget. In process, you use the cost estimates you created in Exercise 3.3, the WBS created in Exercise 2. the project schedule created in the Schedule Development process. Then, using Cost Estimatin tools and techniques, you create the project budget. We'll walk you through this process here.

Inputs to Cost Budgeting

There are three major inputs for the Cost Budgeting process. The first is cost estimates. Depen< on what Cost Estimating technique you used—analogous estimating, parametric modeling, or bo up estimating—your estimate may be very general or very specific. Regardless of the technique, should have a list of the estimates for your project. Table 3.5 shows an example list of estimates project using the bottom-up estimating technique.

Table 3.5: Sample Estimates

Task

Resource

Effort Estimate

A

Resource 1

8 hours

B

Resource 16

4 hours

C

Resource 7

6 hours

D

Resource 9

10 hours

Resource 10

9 hours

Resource 11

12 hours

The second input of the Cost Budgeting process is the WBS. The WBS is used to determine whi tasks will have costs associated with them. You can use a traditional WBS diagram as shown in Figure 3.4 or you can translate the WBS into a table format like the one in Table 3.5.

Figure 3.4: Traditional WBS with duration estimates

The last input used to create a project budget is the project schedule. The project schedule is ci in the Schedule Development process. It provides the element of time to your budget—what mo need to be spent at what time. In the example shown in Figure 3.5, you have already calculated critical path and know that the project is 19 days in length.

Figure 3.5: Project schedule

Determining the Budget

Using the Cost Estimating techniques described in Exercise 3.3 (analogous, parametric modelin bottom-up estimating), you will determine your cost budget. Remember to include all resource c not just human resources. You also need to include the costs for material and equipment resoui

At this point in the budget process, it's imperative that we introduce a term called managerial res Managerial reserves are additional monies put away to cover situations that are impossible to pr You can add this pot of money to your budget during the Cost Budgeting process. Managerial reserves are usually controlled by upper management but are available to the project manager need arises. These monies are not used to fund bad cost estimates. You will need to determine whether you will add these funds to your budget request based on the risks associated with your project.

The result of your work at this point is the total project budget. In Table 3.6, managerial reserves part of the budget.

Table 3.6: The Total Project Budget

Task

Resource

Effort Estimate

Rate

Cost

A

Resource 1

8 hours

$25 per hour

$200

B

Resource 16

4 hours

$100 per hour

$400

C

Resource 7

6 hours

$75 per hour

$450

D

Resource 9

10 hours

$30 per hour

$300

Resource 10

9 hours

$175 per hour

$1,575

Resource 11

12 hours

$25 per hour

$300

Managerial Reserve

$500

Total Budget

$3,725

Creating a Cost Baseline

Just as you created a schedule baseline in Exercise 2.8, you also will create a cost baseline. A c baseline is a copy of the budget prior to work beginning on your project. It is kept for comparisor analysis, and future forecasts. It is also called the planned value (PV). It does not include the managerial reserve or any fees that need to be paid on your project. Table 3.7 shows a sample baseline.

Table 3.7: Sam

ple Cost Baseline

Task

Resource

Effort Estimate

Rate

Cost

A

Resource 1

8 hours

$25 per hour

$200

B

Resource 16

4 hours

$100 per hour

$400

C

Resource 7

6 hours

$75 per hour

$450

D

Resource 9

10 hours

$30 per hour

$300

Resource 10

9 hours

$175 per hour

$1,575

Resource 11

12 hours

$25 per hour

$300

Cost Baseline or Planned Value

$3,225

Note Recommended Reading: Chapter 7, pp. 264-266, PMP Project Management Profess Study Guide.

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Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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