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Cost Estimate vs Budget

Cost Estimate vs Budget

If you enjoyed reading this post, check out all of our post on PMP Concepts Learning Series.

 

Designed to help those that are preparing to take the PMP or CAPM Certification Exam, each post within this series presents a comparison of common concepts that appear on the PMP and CAPM exams.

Cost Estimate vs Budget

There are two processes within the cost knowledge area and planning process group: Estimate Costs and Determine Budget. Both are required in order to develop the project cost performance baseline.

Cost Estimate

The cost estimates are simply the costs associated with the work packages or activities within the project schedule. Depending on the work package or activity, the cost estimate may be determined using parametric, three-point, or analogous estimating techniques.

It is important for all cost estimates to include any assumptions that were made, where did the estimate originate, who provided the information, level of confidence, etc.

Budget

The budget is built using the cost estimates and the project schedule. The budget provides a view of how much the project is estimated to cost both from a total and a periodic perspective. This budget feeds the cost performance baseline which is then used as critical ingredient in performing earned value analysis and other cost management variance analysis techniques.

The project budget must be in alignment with the organization’s funding limits in order to ensure the funding is available and has been appropriated.

Example

The bathroom remodeling project will include the following cost estimates:

Demolition - $3,000: Week 1
Sheet rock - $2,000: Week 2
Tile floor - $3,500: Week 3
Fixture installation - $1,500: Week 4
Painting - $800: Week 4

Therefore the total budget is $10,800:

Week 1: $3,000
Week 2: $2,000
Week 3: $3,500
Week 4: $2,300

Summary

Both cost estimates and budget are needed in order to determine the cost performance baseline and the project funding requirements.

Cost estimates are the estimated costs for each work package or activity, whereas the budget allocates the costs over the life of the project to determine the periodic and total funding requirements.

See all posts in our PMP Concepts Learning Series

1 Comment

  1. Francisco Alcaraz on August 10, 2018 at 3:11 pm

    This is concise and useful information. Thank you.

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