The document discusses the process of determining the budget for a project. It involves aggregating estimated costs from the work breakdown structure to establish a cost baseline. The cost baseline is the approved time-phased budget that is used as a basis for monitoring costs. Determining the budget requires inputs like project documents, agreements, historical data, and the project management plan. Techniques used include cost aggregation, data analysis, and funding reconciliation. Key outputs are the cost baseline, funding requirements, and updates to project documents.

1. Chapter 7 –
Project Cost Management
PMP
Trainer: Anand BobadePMBOK 6th Edition, 2019, All rights reserved.
Determine Budget
SIXTH EDITION

2. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Determine Budget Definition
Determine Budget : ITTO
What is funding limit reconciliation?
What is cost baseline?
What is project funding requirements?
Data flow diagram
Review
7.3 Determine Budget

3. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Cost Management processes
Plan Cost
management
Estimate Cost
Determine Budget Control Cost
PP
MCP

4. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Aggregating the estimated costs of individual activities or work packages to
establish an authorized cost baseline.
Determines the cost baseline against which project
performance can be monitored and controlled.
Determine Budget -> Definition
Activity cost estimates
Contingency
Reserve
Cost baseline

5. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Determine Budget -> ITTO
Expert Judgment
Cost aggregation
Data analysis
Historical information
review
Funding limit
reconciliation
Financing
Project Management
Plan
Project Documents
Business Documents
Agreements
Enterprise
Environmental Factors
Organizational Process
Assets
Cost Baseline
Project Funding
Requirements
Project document
updates
Inputs Tools & Techniques Outputs

6. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Determine Budget -> Inputs
Project Management
Plan
Project Documents Business Documents Agreements
Enterprise
Environmental Factors
Organizational Process
Assets

7. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Project
Management Plan
Cost Management Plan
• Define how project costs will be planned, structured, and
controlled.
• Define how each Cost Management Process is executed.
• Specify preferred method or techniques to be used.
Quality Management Plan:
• Cost of quality
Scope Baseline:
• Scope Statement: Project Scope (Inclusion & exclusions),
Assumptions and constraints.
• WBS: Activity groups in to deliverables or work packages. WBS
provide framework for cost management.
• WBS Dictionary: Control account. Deliverable details.
Determine Budget ->Input->Project Management Plan

8. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Project Documents
Basis of estimates
•Contain assumptions related to the activities.
•E.g., Indirect Costs should be included in the budget or
not.
Cost estimates:
•Cost estimates for each activity within a work package
are aggregated
Project Schedule:
•Tells when these activities are scheduled.
•Determine aggregated cost - specific period,
milestones.
Risk Register
•Examine cost & schedule related risks.
•Reserve should be planned to mitigate & inspect Risks.
•Consider Potential benefits from the positive risks.
Determine Budget ->Input->Project Documents

9. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Business Documents
Determine Budget ->Input->Business documents
Business case:
• It includes the financial success factors for the
project, ROI, milestones, assumptions,
constraints etc.
Benefit Management plan
• What are the benefits of the project
• Include the target benefits, measured by net
present value or return on investment

10. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Agreements
Provide information about contracted resource costs like
Human resource cost, equipment costs etc
Provide payment milestone of each contractual
agreements.
Project can have one or more agreements.
Determine Budget ->Input->Agreements

11. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Enterprise Env.
Factors
Market conditions, Currency exchange rates.
Published commercial information (resource cost)
Project management information system.
Organizational culture and structure.
Determine Budget ->Inputs->EEF

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Organization
Process Assets
Existing cost policies, procedures, and guidelines
(e.g., Budget approval process)
Financial controls procedures.
Cost Budgeting tools.
Financial reporting methods/templates.
Determine Budget ->Inputs->OPA
7.1 I T&T O

13. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Determine Budget -> Tools & Techniques
Expert Judgment Cost aggregation Data analysis
Historical
information
review
Funding limit
reconciliation
Financing

14. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Expert
Judgment
Guided by experience in an application area, Knowledge Area, discipline, industry, or similar project
PM may apply experience & information from prior similar projects.
Consultants, SME or financial experts can provide budgeting expertise.
Determine Budget ->T&T->Expert Judgment

15. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Cost aggregation
Accumulation of costs based on WBS structure.
Considers distribution of payments w.r.t schedule base line. Work packages; Control accounts; Entire project.
Determine Budget ->T&T->Cost aggregation
Activity (Level1)
Work Package (Level2)
Component/control Account
(Level3)
Project (Level4) 500 K
200 K
100 100
300K
100 150
100 50
50

16. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Cost aggregation
Determine Budget ->T&T->Cost aggregation
Control Account (CA) : It is a management control point where
scope, cost and schedule are integrated
It is placed at the selected management points in the
WBS.
It has unique code , which can be linked to accounting
system.
CRM Project –
Cost Baseline
(850 K)
Call Center
upgrade
(100 K)
Installations
(40K)
Call center
software
Customization
(60 K)
Contact Center
setup
(250K)
Infrastructure
setup
(200 K)
Software
implementation
(50 K)
CRM system
implementation
(500K)
CRM System Cost
(400 K)
Software
Customization &
implementation
(100 K)
CA01 CA02 CA03

17. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Data analysis
Analyse ways to finance resources:
Make Buy Rent Lease
Planning may involve choosing strategic options to fund
Self-funding Funding with equity Funding with debt
Determine Budget ->T&T->Analytical Techniques

18. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Historical
information review
Assist in developing parametric or analogous estimates
It uses project characteristics (parameters) to develop mathematical
models to predict total project costs.
Accuracy of estimates become reliable when:
•Historical information used is accurate
•Parameters used are quantifiable
•Models are scalable
Determine Budget ->T&T-> Historical information review
•Home construction -> Cost per square meterSimple
•Software development Model
•Multiple adjustment factors, each of which has
numerous points within it.
•E.g., Code, integrations, function point, data migration
Complex

19. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Funding limit
reconciliation
The expenditure should be reconciled with any funding limits on the commitment of funds for the project.
A variance between funding limits and planned expenditures will sometimes necessitate rescheduling of work.
This is accomplished by placing imposed date constraints for activities.
Determine Budget ->T&T->Funding limit reconciliation
Q1 Q2 Q3 Q4
Project planned expenditure 100K 100K 100K 100K
Actual project cost 110K 115K
Project is moving fast ahead of schedule & hence spending more than planned.
However, management has Imposed Quarterly Funds limit on project.
Hence project has to re-schedule & slow down.
re-schedule & slow down

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Financing
Determine Budget ->T&T->Financing
Acquiring funding for the project
If projects are funded externally then funding entity’s requirements should be meet
Project examples – Long term infrastructure, Industrial, public services projects etc

21. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Determine Budget -> Outputs
Cost Baseline
Project Funding
Requirements
Project document
updates

22. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Cost Baseline
Approved version of time-phased project budget, excluding any management reserves.
It is used as a basis to compare planned(approved) to actual expenditure.
Determine Budget ->Output-> Cost Baseline
0
1,000
2,000
3,000
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Thousands
Monthly Budget Cummulative Budget

23. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Project Funding
Requirements
Total funding requirements & periodic funding requirement is derived from cost baseline.
Funding often occurs in incremental amounts, that are not continuous, and may not be
evenly distributed.
The total funds required:
Cost baseline
• Projected expenditures
• Contingency Reserves
Management reserves (if any).
Determine Budget ->Output->Project funding Requirements

24. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Project document
updates
Cost estimates Project Schedule Risk Register
Determine Budget ->Output-> Project document updates

25. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Determine Budget -> Data flow diagram

26. By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
How to determine Budget?
What is funding limit reconciliation?
What is cost baseline?
What is project funding requirements?
Determine Budget -> Review

27. By: Anand Bobade (nmbobade@gmail.com)