Baseline Budget for your Project Management Direct and Indirect Costs Control Services


Baseline Budgets

One of the major limitations when it comes to starting a project is cost. One of the biggest challenges that awaits a project manager is determining exactly when to set a budget baseline. If you are looking to start a successful project, then you must be willing to spend. Now, the question is: how do you effectively maximize your budget?

A baseline budget helps stakeholders keep a balance between their expectations for the end product and the finances they realistically need in order to complete the project satisfactorily.

Even if you create the best possible plan for your project, the project may still fall short. Every section of the project needs to be progressively and properly monitored and managed. With a baseline budget for your project and a baseline schedule to support it, project managers have the required reference points to perform analysis’ and stay on track.

Criteria for Effective Baseline Budgets & Schedules

The baseline budget includes a breakdown of expected costs of various items and tasks. A baseline schedule contains details about the time required to complete various s tasks. An effective baseline budget must provide a list of the cost elements that can be monitored as the project progresses. Every single item or task within the project should be separately accounted for, no matter how small. Even if the task only involves an individual making a phone call, you must budget for the person’s time, and the resources allocated to that particular individual. Likewise, all resources and materials needed for the project, no matter how trivial, must be considered in the budget.

With a baseline budget, a project manager can be confident. As a project progresses, a PM will have to compare incurred costs to projected costs. Doing this will lets a project manager know if she is over/under budget. It is best practice that projects be broken down into phases. This enables PMs to better track the budget through the life of the project.

A Baseline budget must contain the list of direct costs, indirect costs, contingencies, risks and profits. Direct and indirect costs are largely dependent on the location and schedule of the project. Contingencies, risks, and profits are directed by the proprietors of the project and depend upon their personal valuation of said project.

When focusing on the direct costs, a project manager must include the cost of direct labor and the subcontracted costs for various project tasks. The baseline budget must also contain costs for materials based on a market assessment or prices asked by suppliers. The costs of the equipment need to be worked out separately. One must consider the hire or lease cost of equipment and the period and tasks for which they are required during the project execution. A decision maker may decide, depending on a cost analysis, to buy a piece of equipment instead of renting it.

Indirect costs may include overhead costs for offices and staff that may not be directly attributed to any particular task during a project. They can be considered on-hand resources. The total costs for communication, travelling, stationery, security, and other related things fall under indirect costs. Some baseline budgets may also factor in taxes and municipal charges as indirect costs.

In an ideal world, new baselines should be added when there is a new change in scope. There are a couple other reasons that a project manager might update his baselines:

  1. If the organization asks for a re-estimation (which can also be referred to as re-baseline) of all projects for a company’s corporate budgeting purposes. In this situation, the finance department will request the most up to date estimates on projects even if the scope has not changed.
  2. If an obvious or a significant gap in one or more task estimates has been identified. The term obvious or significant is a subjective term and should be measured in relationship to the project itself.

In the event when the baseline may actually change, it is always important to research, document and understand the reasons for the change. It is always a best practice to post any baseline changes in the project status comments. The changes themselves should be revised and approved by a Change Control Board (CCB) before altering the baseline.

Benefits of a Sticking to a Detailed Baseline Budget

  • Sticking to the budget stimulates creativity and focus. When members of a project team think resources are near unlimited, they unconsciously tend to throw resources at problems rather than facing them head on and finding creative solutions.
  • A detailed baseline budget makes it easier for a project manager to evaluate the progress of the project continuously throughout its life cycle. It provides telling information, which a project manager can use to make critical decision like changing the scope of a project or aborting it altogether.

Without the baseline of a budget, measuring the success or failure of a project is nearly impossible.



Let's have a chat

Contact WorkOtter