Planning to Refine Project Cost Estimate and Budget
Budget cost planning is done in parallel with project schedule development. Budgeting, performed at the initial stages of Project Planning, is the determination of costs associated with the defined activities. The steps associated with budgeting are highly dependent on both the estimated lengths of tasks and the resources assigned to the project.
Initial budgetary estimates are often based on availability of funds or may be dictated by legislation or grant size. These parameters may or may not coincide with the actual funds needed to perform the project. For this reason, budget estimates are refined in the Planning phase until they are baselined at the beginning of the Managing phase.
Budgeting serves as a control mechanism where actual costs can be compared with and measured against the budget. The budget is often a firmly set parameter in the execution of the project. When a schedule begins to slip, cost is proportionally affected. When project costs begin to escalate, the Project Manager should revisit the Project Plan to determine whether scope, budget or schedule needs adjusting.
To develop the budget, the applicable cost factors associated with project tasks are identified. The development of costs for each task should be simple and direct and consist of labor, material and other direct costs. Cost of performing a task is directly related to the personnel assigned to the task, the duration of the task, and the cost of any non-labor items required by the task.
Budget estimates are obtained from the people responsible for managing the work efforts. They provide the expertise required to make the estimate and provide buy-in and accountability during the actual performance of the task. These team members identify people or labor categories required to perform the work and multiply the cost of the labor by the number of hours required to complete the task. Determining how long the task performance takes is the single most difficult part of deriving a cost estimate. The labor costs should factor in vacation time, sick leave, breaks, meetings and other day-to-day activities. Not including these factors jeopardizes both scheduling and cost estimates.
Non-labor charges include such items as material costs, reproduction, travel, cost of capital (if leasing equipment), computer center charges and equipment costs.
All of this information is captured in the Project Budget document.