Cost budgeting is the process of allocating cost to the individual work items in the project. Project performance will be determined based on the budget allocated to the various parts of the project. The result of the cost budgeting process will be to produce the cost baseline of the project.
The cost baseline for the project is the expected actual cost of the project. The budget for a project should contain the estimated cost of doing all of the work that is planned to be done for the project to be completed. In addition, cost must be budgeted for work that will be done to avoid, transfer, and mitigate risks. Contingency must be budgeted for risks that are identified and may or may not come to pass. A reserve must be budgeted for risks that are not identified.
On most projects, the expected value for risks is budgeted. This is reasonable since it reflects the average risk exposure for the project. Using the worst case or the best case situation for the project would be overly pessimistic or optimistic.
The cost baseline for the project is the expected actual cost of the project. The budget for a project should contain the estimated cost of doing all of the work that is planned to be done for the project to be completed. In addition, cost must be budgeted for work that will be done to avoid, transfer, and mitigate risks. Contingency must be budgeted for risks that are identified and may or may not come to pass. A reserve must be budgeted for risks that are not identified.
On most projects, the expected value for risks is budgeted. This is reasonable since it reflects the average risk exposure for the project. Using the worst case or the best case situation for the project would be overly pessimistic or optimistic.