Cost Budgeting

Full Guide on Cost Budgeting

Cost Budgeting is a critical process in the Project Cost Management & CAPM fields.
Why it's important:
Cost budgeting is the procedure in which all approved cost estimates are summed up to develop an official project budget. It establishes a baseline for a project's funds, against which project performance will be compared.
What it is:
In cost budgeting, a detailed cost estimate is prepared, which includes the actual cash required per period (labour, equipment, materials, etc.). Based on this estimate, a project budget is constructed, known as the Cost Baseline, which integrates all the periodical costs.
How it works:
The budgeting process emphasizes determining the overall project budget and distributing the budgeted funds across the individual project phases and deliverables. The cost baseline, often viewed as a time-phased budget, acts as a standard for assessing project performance.
Exam Tips: Answering Questions on Cost Budgeting:

• Highlight the difference between cost estimating and cost budgeting.
• Understand the important aspects of a cost baseline.
• Be prepared to answer questions related to the variance between budgeted and actual costs.
• It's critical to remember that the ultimate goal of cost budgeting is to create a time-phased budget, which acts as a standard against which to measure & track project performance.
• Strong knowledge on project's fund and cost management helps in correct answer identification.