projectbudget

Project budget

A project budget is the approved financial plan for a project, outlining the estimated costs required to complete the work within its defined scope, schedule, and quality standards. It includes direct costs such as labor, materials, equipment, and subcontractors, as well as indirect costs like overhead and facilities. The budget also integrates reserves: a contingency reserve for identified risks and a management reserve for unforeseen work, both managed through formal change control processes.

Development and structure: The budget is created during the planning phase using the work breakdown structure and cost estimates derived through methods such as bottom-up, top-down, parametric estimation, or historical data. The resulting cost baseline represents the approved, time-phased budget against which project performance is measured. In some approaches, rolling-wave planning allows updates as details become available.

Management and control: The budget guides decisions on procurement, resource allocation, and scheduling. It is tracked against actual expenditures, often using earned value management metrics such as planned value (budgeted cost of work scheduled), earned value (budgeted cost of work performed), and actual cost. Variance analysis informs corrective actions and potential re-baselining when necessary.

Governance and risks: The budget is approved by the project sponsor or governance body and subject to change control. Common risks to budgets include scope creep, underestimation of units or durations, price fluctuations, and procurement delays. Effective budgeting aligns with the project charter, scope statement, risk register, and other planning documents.

Relation to other concepts: A well-defined budget ties to the project schedule, resource plan, and risk management plan, serving as a baseline for performance evaluation and stakeholder reporting.