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Cost baseline and cost budget

Cost baselines and Cost budget are two terms from Project Cost Management, that could pose a challenge of understanding to many Project Managers.

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Cost baseline and cost budget

  1. 1. Cost Baseline and Cost Budget The term baseline refers to an accepted and approved project plan. We may have multiple intermediaries baselines. baselining is an activity is approving a particular version of a document to be a reference for project work performance. Cost Baseline The cost baseline is a significant part of the project baseline that efficiently manages the approximate amount of finance the project is predicted to cost. It refers to an approved budget typically in a time distribution format that is used to estimate, monitor and control the inclusive cost performance of the project. When it comes to calculating the sum budget of the project, certain estimates are required to be done. As soon as the project schedule is ready and agreed, a bottom-up process is used for every activity of the project with an estimated detailed cost. In this way, the fairly accurate cost for every major phase and complete project is computed. The initial finance of all planned practices becomes the initial estimated budget. According to PMBOK, the cost baseline is a time-phased budget used as a foundation against which to compute and manage the financial subdivision of the task. Though there are many factors affecting the cost performance of a project so the assessed costs established in the planning phase might not be project precisely. The accurate costs of some particular tasks if not well-known at the planning phase eventually lead to unexpected additional cost. Cost Baseline is managed under configuration management, Cost Baseline = Project Cost Estimates + Contingency Reserves Cost Budget aka Project Budget This is the process of aggregating the estimated costs of individual activities or work packages to establish a cost baseline. Project budget similar to resource plans is a reflection of project work and the effectiveness of that work. An all-inclusive budget provides management with an understanding of how capitals are utilized and consumed over time for projects. The Work Breakdown Structure (WBS) makes for a basis for any budget. It comprises of work essentials to create the product of the project. The WBS is shaped through a breakdown procedure resulting in defined deliverables at the lowest level of the WBS – what is known as a work package or a task in project insight. Any effort executed in creating the deliverable of each task is often defined in terms of cost. For instance, facilities and materials might be used in producing the deliverables of the task. The totality of all tasks in the WBS comprises the sum budget of the project, initial costs of all of the planned activities will become the initial estimated budget.. Project insights typically perform bottom-up
  2. 2. budgeting which means that the chores roll up into summary tasks totals while the overall project represents the summation of all tasks planned and actual costs. Cost Budget = Cost Baseline+ Management Reserves Important Notes 1. Cost Baseline, an output of Determine Budget is part of the Project Management Plan. Project Budget, which includes management reserves are not under the management of Project manager. 1. Cost baseline includes contingency Reserves 2. Project Budget includes Management Reserves 3. Project Cost Estimates = Summed Cost Estimates of All the activities on the Project Source: free-management-ebooks. Other Baselines  Scope baseline – All the work and only the work included. It consists of Scope Statement, WBS and WBS dictionary  Schedule baseline – The project schedule and all other supporting elements  Quality/Risk baseline – the set of known possible changes (uncertainties) that could impact the performance of the project The baselines are interconnected and should be evaluated for impact if one of it is changed. All changes to the Baseline must go through proper change management processes. “Never base your budget requests on realistic assumptions, as this could lead to a decrease in your funding.” – Scott Adams, Dilbert