7.3 Determine Budget The process of aggregating the estimated costs of individual activities or work packages in order to establish an authorised cost baseline for the project Project budgets are the funds authorised to execute the project Project cost performance is measured against the authorised budget and the cost baseline Simplified by using project management software Occurs during Planning Initiation Planning Execution Close Monitor Control Adapted from PMBOK 5th Edition

7.3 Determine Budget Time is Money Inputs to Determine Budget Cost Management Plan Scope Baseline – Scope Statement and Work Breakdown Structure Activity Cost Estimates Basis of Estimates Project Schedule Resource calendars Risk Register Time is Money Adapted from PMBOK 5th Edition

7.3 Determine Budget Inputs to Determine Budget - continued Agreements Organisational Process Assets: Cost management and budgeting policies and procedures Cost budgeting tools Reporting methods and formats Adapted from PMBOK 5th Edition

7.3 Determine Budget Tools and techniques to Determine Budget Cost Aggregation Cost estimates for activities and work packages are aggregated to deliverables and then for the entire project Closely related to the Work Breakdown Structure Funding Limit Reconciliation Reserve Analysis Cost Aggregation Expert Judgement Historical Relationships Adapted from PMBOK 5th Edition

7.2 Determine Budget 20% contingency Reserve Analysis Expert Judgement Inclusion of contingency Can be calculated for each activity Can be calculated for entire project Often a percentage based on risk or complexity Expert Judgement Based on expertise in a specific knowledge area, industry or discipline Many sources including – Consultants Stakeholders Professional associations Industry Groups 20% contingency Initiation Planning Execution Close Monitor Control Adapted from PMBOK 5th Edition

7.3 Determine Budget Historical Relationships Uses both parametric and analogous estimates from previous projects with similar characteristics Often includes mathematical models to assist in cost estimating based on estimating tables published by industry or developed internally for an organisation Funding Limit Reconciliation Relates to funding limits that are set at the beginning of a project and analyses variances to these in order to control cost Not commonly used as inaccurate and difficult to enforce Initiation Planning Execution Close Monitor Control Adapted from PMBOK 5th Edition

Typical Expenditure and Funding Patterns $ Actual Expenditure Cumulative Expenditure Funding Request 5 Funding Request 4 Funding Request 3 Cost Baseline Funding Request 2 Funding Request 1 Time Initiation Planning Execution Closure

7.3 Determine Budget Outputs of this process include – Cost Performance Baseline The authorised budget for the entire project Budget is calculated and displayed over time Project Funding Requirements Includes both total funding requirements and periodic funding requirements Often approved for each phase rather than entire project Project Document Updates Changes to the Risk Register Changes to Cost Estimates Changes to Project Schedule Initiation Planning Execution Close Monitor Control Adapted from PMBOK 5th Edition

7.3 Determine Budget From PMBOK 5th Edition

7.3 Determine Budget From PMBOK 5th Edition

7.3 Determine Budget Item Labour hours Rate per hour Labour Below is an example budget taken from a Kitchen renovation project. Item Labour hours Rate per hour Labour Fixed price Fixed costs Cost Direct Costs   Kitchen Fitout 4,300 20,000 24,300.00 Painting 100 60 2,000 8,000.00 Appliances 5,400 5,400.00 Flooring 14,000 14,000.00 Splashback installation 5 50 4,000 4,250 Sink installation 2,250 Council Fee 200 200.00 Shop Fitter 4 400.00 Electricals 10 80 400 1,200 Plumbing 120 500 1,700 Inspection 100.00 Project Manager 30 3,000 Home Content Insurance Indirect costs 10% 6,520 Sub Total $71,720 Contingency 20% 14,344 Total $86,064

7.3 Determine Budget Budget Assumptions: It is assumed that indirect costs are 10% of direct costs only Labour rates will not change