Establishing Baselines: The Core of Project Cost Management
The Determine Budget process is a crucial step in project cost management. It involves aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. This cost baseline serves as a reference point against which project performance can be monitored and controlled, making it a key benefit of the Determine Budget process.
Typically, the Determine Budget process is carried out once or at predefined points during the project. The timing depends on the project's nature and complexity, as well as the organization's policies and procedures.
A project budget includes all the funds that have been authorized for the execution of the project. It encompasses all estimated costs, including labor, materials, equipment, services, contingency reserves, and any other costs associated with the project.
The cost baseline is the approved version of the project budget that is distributed over time. It provides a time-phased budget for the project, allowing for effective cost control and performance measurement. Importantly, the cost baseline includes contingency reserves, which are funds set aside to address identified risks associated with specific project activities.
However, it's important to note that management reserves, which are funds set aside to address unforeseen risks or changes, are not included in the cost baseline. These reserves are part of the overall project budget but are not allocated to specific activities or work packages.