Join Terri Wagner for an in-depth discussion in this video Building a budget, part of Project Management: Preventing Scope Creep.
You know what the high level estimate was when the project charter was signed. But now you need to true-up the estimates to reflect the greater level of detail you have about the project, thanks to your progressive elaboration. The total effort required to perform the project is determined in the estimating and scheduling process. Until the final schedule has been agreed upon, estimating isn't complete, because as you schedule, you may reassign resources which may change effort estimates for individual tasks.
The effort is multiplied by the hourly rate for the resources to obtain human resource cost. The hourly rate may be loaded for the organization to include things such as overhead expenses, benefits or paid leave. Then, capital costs or costs that are associated with non-human resource elements such as equipment purchases, software license costs, costs of supplies or facilities directly charged to the project and project overhead are added to the total. The output from these calculations are allocated over the project duration based on where in the schedule the resources are expected to expend their effort on the human side or be applied or consumed on the non-human side.
This is referred to as your time-phased project budget. Then risks are considered and your contingency fund requirements are determined. Management reserve will include risks to the organization beyond the control of the project manager. Management reserves will be included in the overall budget for your project as considered at the portfolio level, but they're not included in the cost base line the project manager will be working with. These are the steps expected in a mature organization. When cost estimating is well paired with detailed planning and breaking all work down into the work breakdown structure, you have a winning combination.
Similar to a well prepared meal that is paired with the perfect wine that complements both the food and the experience. Instead of just focusing on one element, the budget, we look at the budget in alignment with the schedule to get the bigger picture. In less mature organizations, I've seen budget numbers pulled out of thin air with ridiculous expectations to hit that number exactly. If that number was ridiculously high, then added scope along the way may be welcome to absorb the excess put into the budget. Okay, so how often does that really happen? I've seen it but more often it's been the opposite.
Where it's too little money allocated to a project because it was not based on detailed planning. Therefore, simply accomplishing the stated scope becomes difficult and when added scope is introduced, everything goes out of sorts. So, think about your budget planning. Are you starting with a project charter number and trying to run the project to that estimate? Or breaking the estimate down and pairing it to the work packages over a timeline? Take the information we've provided here and see if you can build more details into your estimates to increase your confidence in your baseline budgets.
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- What is scope creep?
- Why does scope change?
- Factoring in organizational maturity
- Setting scope and requirements
- Building a budget
- Resetting unrealistic expectations
- Resolving communication issues with stakeholders<br><br>
- The PMI Registered Education Provider logo is a registered mark of the Project Management Institute, Inc.