2. Cost Budgetting The output of the budgeting process is an approved project budget that is allocated to different control accounts within a distributed budget The total project budget is flowed down from the contract negotiation Management and the PM divide up this budget to create a budget structure that defines the total funding available to be spent in the program as the distributed budget. A control account structure is developed based on the work breakdown and organizational breakdown structures. The distributed budget is “rationally” allocated to the control accounts.
3. The Budget The budget is the amount of funding authorized to complete a “chunk” of the project scope This “chunk” may be the entire project scope in the SOW and estimate, or a subset of this – for example: customer funding may be negotiated in phases A customer may solicit a proposal for both the R&D and production costs for an innovative, risky product, but only fund the R&D portion until it is evident it will work. management may wish to control the funds “at risk” at any one time For the same project, the customer may fund both phases, but management may only release the R&D portion in order to ensure that the product developed is profitable before authorizing production. The budget is therefore related to the original estimates provided, but not necessarily the same, and usually less. Budget review is essential to: Understand the scope approved Highlight differences between funds authorized and funds estimated
4. Budget Sources and Structure The Budget is provided by company management via the Sponsor team It is authorized initially in the Project Charter, with changes introduced via the Integrated Change Control process (Changing the Plan) The budget amount authorized is usually: For customer funded activity, related to the amount agreed to within the proposal/contract negotiation, the Contract Price For internally funded activity, an amount provided by management based on the original estimates provided and available company financing In both cases, the total budget amount will be allocated for various purposes, among which is covering the costs of performing the project work This allocation creates a number of budget “baselines” that comprise the budget “structure”
5.
6. Different “layers” of management remove the pieces of the budget “pie” for which they are responsible, and measure lower layers based on what is leftContract “Baselines” Contract Budget Base (CBB) Negotiated Contract Cost Performance Measurement Baseline (PMB) Distributed Budget
7. Who’s budget? Who gets measured at what baseline? Fee & Profit Authorized/ Non-priced Work(non-negotiated) Management Reserve Undistributed Budget Control Accounts Planning WBS Work Packages Planning Packages Contract Price Business Management – Corporate (“P&L”) Contract “Baselines” Contract Budget Base (CBB) “Resource” Management - Sponsor (“Cost Centre”) Negotiated Contract Cost Performance Measurement Baseline (PMB) Project Management Control Account Management Distributed Budget
8.
9. The total anticipated project cost or Contract Budget Base (CBB) is determined after negotiations by removing the profit.”
10.
11. This is the Negotiated Contract Cost, and what the “organization” calls “the budget Negotiated Contract Cost Performance Measurement Baseline (PMB) Distributed Budget
12.
13.
14. The Project Manager will decide how much of the PMB to retain as Undistributed Budget to deal with short term issues and performance variation, and how much to distribute
15. Of the distributed amount, some will be distributed to the team to perform work against Work Packages, and some will be allocated to future work that is not yet authorized, but is kept in Planning PackagesContract Budget Base (CBB) Negotiated Contract Cost Performance Measurement Baseline (PMB) Distributed Budget
21. At the Control Accounts, control over the budget passes to the Control Account Managers (CAMs)Contract Budget Base (CBB) Negotiated Contract Cost Performance Measurement Baseline (PMB) Distributed Budget
22. Work vs. Planning Packages Control Account No. 1 Control Account No. 6 Work Packages Planning Package Control Account No. 2 Control Account No. 8 Work Packages Planning Package Planning Package Control Account No. 3 Control Account No. 5 Work Packages Planning Package Time Now Time 6 Months
