PROJECT MANAGEMENT
CERTIFICATE PROGRAM
DEFINE PROJECT BUDGET
Module 8
1
2
Module Objectives
By module end, you will be able to:
• Understand how to plan Budget and
Quality for a project
• Understand the purpose for using
these processes for the project or
phase
• Understand what tools will be used
to plan the Budget
3
Plan Project Budget
• Plan Project Budget is performed to
develop the budget for the project
• The outcomes desired from the
budgeting processes are:
– Purchasing decisions should be
determined and made
– The selected vendor will finalize a
contract
– The project budget will be fully
defined
Plan Project Budget
Key Tasks:
• Develop project cost estimates
• Verify cost estimates are complete
• Utilize make-or-buy analysis
• Request vendor proposals
• Evaluate proposals
• Award contract to selected seller/vendor
• Allocate overall costs to individual activities
• Determine contingency and management
reserves
• Develop cost baseline
Plan Project Budget
In Plan Project Budget, 4 PMBOK
processes are used:
• Estimate Costs (Cost)
• Plan Procurements (Procurement,
used with Cost)
• Conduct Procurements (Procurement,
used with Cost)
• Determine Budget (Cost)
Estimate Costs
• Process of determining the estimated
costs of resources; it includes:
– Direct resources
•Labor, materials and equipment
– Indirect costs
•Contingency cost reserves,
inflation allowances, cost of
quality and overhead
– Estimates may be reported in detail
or summary form
Estimate Costs
This process approximates the costs of resources needed to complete
project activities
Inputs
Tools and Techniques
Outputs

Scope Baseline

Expert Judgment

Activity Cost Estimate

Project Schedule

Analogous Estimating

Basis of Estimates

Human Resource Plan

Parametric Estimating

Project Document

Risk Register

Bottom-up Estimating

Enterprise

Three-Point Estimates
Environmental Factors

Reserve Analysis
Organizational Process

Cost of Quality

Project Management

Assets
Estimating Software

8
Vendor Bid Analysis
Updates
Estimate Costs
Think about the practical application
of this process :
• Process Documents
• Document Templates
• Process Tasks
• Think About It Exercise
MUST KNOW CONCEPTS
10
Plan Procurements
• Planning process used to document
decisions regarding purchasing and
acquisition
• Identifies potential sellers for required
resources
• Three primary activities occur:
– Make-or-buy decision making
– Selecting the type of contract
– Creating the Procurement
Management Plan
Fixed Price
12
Cost Reimbursable
Time & Materials
Contract Forms
FP = Fixed price
FPIF = Fixed price incentive fee
FPEPA = Fixed Price economic
price adjustment
CR = Cost Reimbursable
CPFF = Cost plus fixed fee
CPPC = Cost Plus percent of cost
CPIF = Cost Plus Incentive Fee
T&M
T&E = Time and Expense
Advantages
Less work for buyer to manage, less
cost risk to buyer. Seller has
incentive to control costs. Buyer
knows total cost.
Simpler scope of work, sometimes
provides lower cost since seller does
not need to factor in as much risk.
Quick to create SOW, good choice
for staff augmentation.
Best to use when
You know precisely what you need
done.
You need help in determining what
needs to be done.
Short term staff augmentation.
Need someone right away.
Disadvantages
Seller may attempt to add-on with
change orders. Needs a detailed
SOW – changes have to be
controlled closely.
Buyer has to closely control each
seller invoice to avoid overpaying.
Seller has a moderate incentive to
control costs.
Seller has no incentive at all to
control costs or to work efficiently.
Requires daily management by the
buyer.
Scope of work
Detailed – has to define all the work
specifically.
Moderate detail – wants seller to
help define the work.
Brief SOW – usually specified on a
daily basis to resource.
Plan Procurements
This process documents purchasing decisions,
the procurement approach, and identifies potential sellers
Inputs
Tools and Techniques

Scope Baseline

Make or Buy Analysis

Requirements

Expert Judgment
Documentation

Contract Types
Outputs

Procurement
Management Plan

Procurement
Statements of Work

Teaming Agreements

Risk Register

Make-or-Buy Decisions

Risk-Related Contract

Change Requests
Decisions

Procurement

Documents
Organizational Process
Assets

Source Selection
Criteria
13
Plan Procurements
Think about the practical application
of this process :
• Process Documents
• Document Templates
• Process Tasks
• Think About It Exercise
MUST KNOW CONCEPTS
15
Conduct Procurements
• Used to solicit and obtain the projects
external resources, includes:
– Obtaining seller responses & bids
– Selection of a seller or sellers
– Awarding contracts
• Project manager (or purchasing
department) will notify sellers of the
potential need by providing
appropriate procurement documents
Conduct Procurements
• Project manager (or purchasing
department) will receive proposals
from the seller
• Statements of work and evaluation
criteria developed during “Plan
Procurements” may be used
Conduct Procurements
This process obtains seller responses, selecting sellers, and awarding
contract
Inputs


Outputs
Project Management

Bidder Conferences

Selected Sellers
Plan

Proposal Evaluation

Procurement Contract
Procurement
Documents

Tools and Techniques
Source Selection
Criteria
Techniques
Award

Independent Estimates 
Resource Calendars

Procurement

Change Requests
Negotiations

Project Management

Qualified Seller List

Seller Proposals

Expert Judgment

Project Documents

Advertising

Make-or-Buy Decisions

Internet Search

Teaming Agreements

Organizational Process
Assets
18
Plan Updates

Project Document
Updates
Conduct Procurements
Think about the practical application
of this process :
• Process Documents
• Document Templates
• Process Tasks
• Think About It Exercise
MUST KNOW CONCEPTS
20
Determine Budget
• Project budget is sometimes termed
the “Project Cost Baseline” or
“Performance Measurement Baseline
(PMB)
• The cost performance baseline is the
time-phased budget
• It is used to monitor and measure
project cost performance across
remaining project phases
Determine Budget
• When using Earned Value Techniques,
the Performance Measurement
Baseline is represented by Budget at
Completion(BAC)
• Cost performance baselines are
typically illustrated using graphs
– Plotted cost baselines usually form
an S-Curve appearance.
Determine Budget
•Determine Budget
This process aggregates individual activity costs to establish the project’s
Cost Performance Baseline
Inputs
Tools and Techniques

Activity Cost Estimates

Cost Aggregation

Basis of Estimates

Reserve Analysis

Scope Baseline

Expert Judgment

Project Schedule

Historical Relationships

Resource Calendars

Funding Limit

Contracts

Organizational Process
Assets
23
Reconciliation
Outputs

Cost Performance
Baseline

Project Funding
Requirements

Project Document
Updates
Cost Baseline
• AKA Cumulative Cost Curve or “S
Curve”
• Time-phased budget used to measure
and monitor cost performance on the
project (Performance Measurement
Baseline – PMB)
• Integrates the budget with the
schedule
• Typically represented graphically
24
Typical Incremental Cost Curve
End of Project
500
Period Costs $
400
300
Planning Phases
Execution Phase Stages
Closure Phase
Bulk of the
work and
costs will
occur here
200
100
0
Period 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Expenses
25
Typical Cumulative Cost Curve
“Cost Baseline” or “S” Curve
500
End of Project
Project
will cost
Cumulative Costs $
400
300
this much
200
And take
this long
100
0
Period
26
0
1 2
3 4
5 6
7
8 9 10 11 12 13 14 15
Expenses
Reserves
27
• Contingency
– Included in project budget
– To deal with minor cost variances
– And in particular to anticipate risk
• Management Reserve
– Held outside the project budget
– To deal with major unknowns
– Sometimes as a management
control
Determine Budget
Think about the practical application
of this process :
• Process Documents
• Document Templates
• Process Tasks
• Think About It Exercise
MUST KNOW CONCEPTS
29
MODULE REVIEW