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Determine budget Process

Determine budget Process: how to build a budget

 

Tools

 

  1. Roll up your estimates into control accounts. This tool is called cost aggregation. You

take your activity estimates and roll them up into control accounts on your work breakdown structure. That makes it easy for you to know what each work package in your project is going to cost.

 

  1. Come up with your reserves. When you evaluate the risks to your project, you will set aside some cash reserves to deal with any issues that might come your way. This tool is called reserve analysis.

 

  1. Build a baseline. Just like your scope and schedule baselines, a cost baseline is a snapshot of the planned budget. You compare your actual performance against the baseline so you always know how you are doing versus what you planned.

 

  1. Use your expert judgment. Here’s where you compare your project to historical data that has been collected on other projects to give your budget some grounding in real-world historical relationships, and you use your own expertise and the expertise of others to come up with a realistic budget to cover your project’s costs.

 

  1. Make sure you haven’t blown your limits. This tool is funding limit reconciliation. Since most people work in companies that aren’t willing to throw unlimited money at a project, you need to be sure that you can do the project within the amount that your company is willing to spend.

 

  1. Figure out funding requirements. It’s not enough to have an overall number that everyone can agree to. You need to plan out how and when you will spend it, and document those plans in the project funding requirements. This output is about figuring out how you will make sure your project has money when it’s needed, and that you have enough to cover unexpected risks as well as known cost increases that change with time.

 

  1. Update your project documents. Once you have estimated and produced your baseline and funding requirements, you need to update your Cost Management plan with anything you learned along the way.

Exercise

  1. Alice reads a newspaper article that says that there has been a sharp increase in lumber costs recently. She knows this wasn’t in her contractor’s original plan and decides to put a few hundred dollars aside to deal with the price hike if it should happen.
  2. Parametric estimating 2. Reserve analysis 3. Cost aggregation 4. Funding limit reconciliation

 

  1. Jeff helps Alice add up all of the estimates they have done into control accounts so that they can figure out how much the stereo installation is going to cost versus building the entertainment center.
  2. Parametric estimating 2. Reserve analysis 3. Cost aggregation 4. Funding limit reconciliation

 

  1. Once the budget is close to done, Alice looks over their financial plans for the year to be sure that they can afford everything at the time that it is needed.
  2. Parametric estimating 2. Reserve analysis 3. Cost aggregation 4. Funding limit reconciliation
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