Cost Budgeting & Cost

Control
As per PMBOK Chapter 7
Determine Budget

• Budgeting is allocating costs to work packages to establish a cost baseline to measure project
performance
• Remember Contingency items are for unplanned but required changes it is not to cover things such
as:
• Price escalation
• Scope & Quality Changes
• Cost budgeting and cost estimates may go hand-in-hand, but estimating should be completed
before a budget is requested—or assigned. Cost budgeting applies the cost estimates over time.
This results in a time-phased estimate for cost, allowing an organization to predict cash flow needs.
• The difference between cost estimates and cost budgeting is that cost estimates show costs by
category, whereas a cost budget shows costs across time.
 3. Determine Budget
2
Info on which resources are 6 1
3 SCOPE
assigned and when they RESOURCE 5 COST WBS Dictionary
ACTIVITY BASELINE
are assignedCALENDARS PROJECT MANAGEMENT
COST
SCHEDULE PLAN
9 ESTIMATES
ORGANIZATION
8 7 AL 4
AGREEMENTS RISK PROCESS ASSETS BASIS
REGISTER (OPA) OF
ESTIMATES

• Existing formal & informal cost budgeting- TOOLS &

related policies, procedures and TECHNIQUES 1. COST AGGREGRATION
guidelines; 2. RESERVE ANALYSIS
• Cost budgeting tools; and 3. EXPERT JUDGMENT
• Reporting methods OUTPUT 4. HISTORICAL RELATIONSHIPS
OUTPU
T 5. FUNDING LIMIT RECONCILIATION

PROJECT PROJECT
COST
FUNDING DOCUMENTS
BASELINE
REQUIREMENTS UPDATES
Determine Budget: Inputs
1. Cost Management Plan – describes how project costs are managed & controlled
2. Scope Baseline:
Project Scope Statement; WBS; & WBS Dictionary.
3. Activity Cost Estimates – each activity in a work package are aggregated to get the cost
estimate
4. Basis of Estimates – must specify basic assumptions related to inclusion, exclusion of indirect or
other costs
5. Project Schedule – planned start & finish dates of activities, milestones, work packages & control
accounts
6. Resource Calendars – provide info on which resources are assigned and when they are assigned
7. Risk Register – must be reviewed to consider how to aggregate the risk response cost.
8. Agreements
Applicable agreement information and cost relating to products, services, or results that have
been or will be purchased are included when determining the budget.
9. Organizational Process Assets
such as Existing formal/informal cost-budgeting policies, procedures & guidelines; Cost
budgeting tools; and Reporting methods.
Determine Budget: Tools & Techniques

• Cost Aggregation
costs are aggregated by work packages rolling up to the entire project
• Reserve Analysis
can establish both contingency reserves & management reserves for the project
• Expert Judgment
such as from Other departments, consultants, stakeholders (including the customers), professional &
technical associations; and industry groups.
• Historical Relationships
that result in parametric or analogous estimates to develop mathematical model to predict total
project cost. The accuracy depends on if the:
• Historical information used to develop the model is accurate.
• Parameters used are readily quantifiable; and
• Models are scalable
• Funding Limit Reconciliation
Expenditures must be reconciled with any funding limit. A variance may necessitate a rescheduling
to level out the rate of expenditures by placing date constraints on the schedule.
Cost Budgeting – Cost Baseline

• A project’s cost baseline shows what is

expected to be spent on the project. It’s
usually shown in an S-curve. The idea of the
cost baseline allows the project manager and
management to predict when the project will
be spending monies and over what time
period. The purpose of the cost baseline is to
measure and predict project performance.
• Large projects that have multiple deliverables
may have multiple cost baselines to illustrate
the costs within each phase. Additionally,
larger projects may have cost baselines to
predict spending plans, cash flows of the
project, and overall project performance.
• The purpose of a cost baseline is to measure performance, and a baseline will predict the
expenses over the life of the project. Any discrepancies early on in the predicted baseline and the
actual costs serve as a signal that the project is slipping.
 4. CONTROL COSTS

3 1
WORK PROJECT
PERFORMANCE MANAGEMENT
DATA PLAN

4
ORGANIZATIONAL 2
PROCESS PROJECT
ASSETS FUNDING
• Existing formal & informal cost REQUIREMENTS
(OPA)
budgeting-related policies,
procedures and guidelines;
• Cost control tools; and TOOLS & 1. EARNED VALUE MANAGEMENT
• Monitoring & Reporting methods to TECHNIQUES 2. FORECASTING
be used 3. TO COMPLETE PERFORMANCE INDEX (TCPI)
4. PERFORMANCE REVIEWS
OUTPUT 5. PROJECT MANAGEMENT SOFTWARE
OUTPU
T 6. RESERVE ANALYIS

WORK PROJECT PROJECT ORGANIZATIONAL

COST CHANGE
PERFORMANCE MANAGEMENT PLAN DOCUMENT PROCESS ASSETS
FORECASTS REQUESTS
INFORMATION UPDATES UPDATES UPDATES
Cost Control

Cost Control is concerned with

a) Influencing the factors which create changes to the cost baseline to ensure that changes are
beneficial.
b) Determining that the cost baseline has changed
c) Managing the actual changes when and as they occur.

Cost Control includes:

• Monitoring cost performances to detect variances from plan.
• Ensuring that all appropriate changes are recorded accurately in the cost baseline
• Preventing incorrect, inappropriate, or unauthorized changes from being included in the cost
baseline.
• Informing appropriate stakeholders of authorized changes
Objectives of Cost Control

1 – To have a knowledge of the profit and loss of the project throughout the duration of
the project.
Project Profits
• Client payments.
• Sale of surplus or scrap material and plant
• Payments for plants or labor by others, where, this plant or labor is , from time to time not required
for the project.
Project Losses
• Labor and site office costs
• Plant costs
• Site overheads i.e. site facilities, access roads and office etc
• Cost of tendering including bonds, insurance, etc.
• Material costs.
• Head office overheads proportioned over all current projects.
Objectives of Cost Control

2 – To have a comparison between the actual project performance and that conceived in
the original project plan.
• Comparison is basically done according to the following bases:
• According to units of production
• According to line items; e.g., labour, material, equipment, overheads,

3 – Provides feedback data on actual project performance to future project planning