PMBOK

SIXTH EDITION
Guide
CHAPTER 07
7.3 Determine Budget
 DETERMINE BUDGET
aggregating costs of individual activities to generate cost baseline
 1 Overview

COST PROCESSES I P E M&C C

Plan Cost Management X

Estimate Costs X

Determine Budget X

Control Costs X

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 1 Overview

COST PROCESSES
Plan Cost Management Documenting how to manage
and control costs
Estimate Costs Approximating the finances
needed to complete project
activities
Determine Budget Aggregating costs of individual
activities to generate cost
baseline
Control Costs Monitoring project costs and
managing changes to the cost
baseline

Key Outputs: Cost Baseline

Key Benefit: project performance can be

monitored and controlled

Performing: once or at predefined points in

the project

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 2 Outputs

COST BASELINE

• The approved version of the budget (minus reserve)

• Basis for comparison to actuals
• Basis for measurement, over time, of the expected
cash flows

Management
Reserve Cost Baseline
Overall
Contingency
Reserve
Contingency
Reserve
Project
Delivery Contingency
Cost
Reserve
Baseline Control Work
Accounts Package Activity
Estimates Cost
Estimates

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 2 Outputs

PROJECT FUNDING REQUIREMENTS

• Forecasted costs to be paid

• They are total or periodic requirements
• It may includes the source of funding

• EXAMPLE:
Do you need $1M this month and $2M next
month?

PROJECT DOCUMENTS UPDATES

• Cost Estimates
• Project Schedule
• Risk Register

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 3 Tools & Techniques

Expert Judgment

Cost Aggregation
1. tallying the activity cost estimates at the work
package level; and then
2. totaling the work package levels to higher level WBS
component levels (such as the control accounts);
3. all the costs can be aggregated to obtain a total
project cost.

Data Analysis
• Reserve analysis → management reserve
• Cost of quality (COQ)
… the total cost to produce the product or service of
the project according to the quality standards

EXAMPLE: prevention costs, appraisal cost, failure

cost

Historical Information Review

• assist in developing parametric estimates or
analogous estimates
• EXAMPLE: residential home construction is based on
a certain cost per square foot of space

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 3 Tools & Techniques

Funding Limit Reconciliation

reconciling the amount of funds to be spent with
the amount of funds budgeted for the project

Financing
obtaining funding for the project and taking into
account how that funding will be tracked, reported,
and used throughout the project

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 4 Inputs

Project Management Plan

• Cost management plan
… describes how the project costs will be structured
into the project budget
• Resource management plan
… provides information on rates, travel costs, etc.
• Scope baseline

Project DOCUMENTS
• Cost estimates

• Basis of estimates
… supporting detail regarding the estimates

• Risk register
… to aggregate the risk response costs.

• Project schedule
… helpful in developing the budget, such as start and end
dates for activities and milestones.

Business Documents
… includes the target benefits, such as net present value
calculations, timeframe for realizing benefits, and the metrics
associated with the benefits.

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 4 Inputs

Agreements
… include cost information for purchased goods or services

EEF
• Exchange rates

OPA
… includes the target benefits, such as net present value
calculations, timeframe for realizing benefits, and the metrics
associated with the benefits.

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 5 Exam Spotlight

Cost Baseline
• Cost baselines are displayed as an S curve. The project
spending starts out slowly, gradually increases over the
project’s life until it reaches a peak, and then tapers off again
as the project wraps up.

• Large projects are difficult to graph in this manner because the

timescale isn’t wide enough to accurately show fluctuations in
spending.

• Cost baseline does not include management reserves, but the

project budget does include them.

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 5 Exam Spotlight

Agile’s Budget
… when working on an agile project where cost or budget is the
primary constraint, you will need to adjust schedule and scope to
accommodate cost

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“ “
The budget was unlimited,
but I succeeded it.