Having a thorough budget the project manager can make better decisions regarding the constraints (time, cost and scope) to successfully complete the project while satisfying stakeholders’ needs and understanding the implications on the PM schedule and resource allocation. For example, the project budget helps determine what the scope items should be included in the PM plan and which items should be removed from this document. Alternatively, if one of the key constraints is to complete a project before a specified date, then the project budget will help you determine the degree of schedule crashing permitted so that you can deliver the project on-time.

            Project budget management is a process of formally identifying, approving and paying the costs or expenses incurred on the project. Project budget management involves using purchase order forms to state each set of project expenses, such as training, consulting services, equipment and material cost, etc. Usually in the process, the project manager plays the role of “Approver” (a person who approves a budget for a project) and the finance unit (e.g. Finance Department) acts as a “Recorder” (an organizational unit that tracks and audits budgeting activities and reports to the project manager). Project budget management engages the performing organization in defining the roles and responsibilities of all parties involved in managing budget activities by undertaking the process of determining budget.

The implementation of the project budget determining process requires some initial information that is called “inputs”. Such inputs will be used as a foundation for taking the listed process steps. The following budget determining inputs can be considered:

Activity Cost Estimates provide a cost estimate for each work package (a set of individual activities) within the WBS. Estimates Basis shows all details on cost estimates and specifies the basic decisions regarding the inclusion or exclusion of indirect project costs. Scope Baseline includes the scope statement, the WBS and WBS dictionary allowing determining the project budget in accordance with the cost estimates per work package. Project Schedule is a component of the project management plan and it reflects planned start and finish dates for the project activities, milestones, time-frames for individual activities and work packages, and auditing calendars. The information in Project Schedule is used to develop a cost schedule that indicates when the costs are planned to be incurred. Procurement Contracts are used to determine the project budget considering all costs incurred and associated with products and services purchased from vendors and suppliers. Resource Calendars are used to investigate information on resource assignments and allocation of working time assigned to the resources.

The process results in the following:

Cost Performance Baseline: The process allows setting the cost performance baseline that gives a formal time-phased budget for estimating, tracking and controlling the overall cost performance of the project. The cost performance baseline is an aggregation of all budgets approved by time period.

Project Funding Requirements: The process results in identification of the requirements for the total project funds. The cost baseline and the management contingency reserve amount will be covered by the requirements.

Project Document Updates: The process of project budgeting is a critical activity that involves updates of relevant project documents, such as Project schedule, Risk Register, project cost estimates.

Reference:

1. http://www.project-management-skills.com/project-budgeting.html