Budgeting the Project

Chapter #5
What Does Budget Mean?
• An estimation of the revenue and
expenses over a specified future period of
time.
• A budget can be made for a person, family,
group of people, business, government,
country, multinational organization or just
about anything else that makes and
spends money.

MEM 612 Project Management

Budget
• Total “Projected” cost to complete a project
during a specific period of time with a
specific result.
• The entire estimated
cost to complete the
project

MEM 612 Project Management

Introduction
• Budgets are plans for allocating
organizational resources to project
activities.
– forecasting required resources, quantities
needed, when needed, and costs
• Budgets help tie project to overall
organizational objectives.
• Budgets can be used as tool by upper
management to monitor and guide
projects. MEM 612 Project Management
METHODS OF BUDGETING
Top-Down Budgeting
• Used when no enough information is available.
• For cost calculation similar other projects are the main
focus.
• Based on collective judgments and experiences of top
and middle managers.
• Overall project cost estimated by estimating costs of
major tasks

• Advantage
– Time saving
• Disadvantage
– Small activities within the major activities are ignored
MEM 612 Project Management
Bottom-Up Budgeting
• When more expertise and information are
available.
• Action plan identifies elemental tasks
• Those responsible for executing these
tasks estimate resource requirements
• Advantage
– More accurate in the detailed tasks
• Disadvantage
– Time consuming
MEM 612 Project Management
COST ESTIMATING
Work Element Costing
• Determine resource requirements and then
costs for each task
– Direct and indirect costs
– Fixed and Variable costs
– Materials
– Labor
– Licenses
– Equipment and space
– Other
MEM 612 Project Management
Thank you!

MEM 612 Project Management