HKSM

Purpose & When to Use

The goal of Determine Budget is to turn cost estimates into an approved, time-phased budget you can use to track and control costs. It brings together all costs from the work breakdown structure, schedule, resources, procurement, risk responses, and overheads. The result is a cost baseline and total project budget, plus a clear cash flow plan showing when funds are needed.

• Use during planning to set the cost baseline and secure funding approval.
• Revisit at stage gates, during rolling-wave planning, or after approved scope or schedule changes.
• Use when aligning project spending with organizational funding cycles or funding caps.

Mini Flow (How It’s Done)

• Gather inputs: scope and WBS, schedule, activity and work package cost estimates with their basis, resource rates, risk register, contracts, and organizational financial rules.
• Aggregate costs from activities to work packages and higher WBS levels, then spread them over time based on the schedule.
• Add contingency reserves for identified risks linked to planned responses, using quantitative analysis or sound expert judgment.
• Include applicable indirect costs, fees, taxes, procurement costs, and financing charges as required by the organization.
• Build the time-phased cost baseline used for performance measurement; this includes contingency but not management reserve.
• Compare planned spending with funding limits and reconcile by adjusting the schedule or work sequencing to stay within caps.
• Set the total project budget by adding management reserve on top of the cost baseline; this reserve is controlled by management.
• Document assumptions, exchange rates, escalation factors, and the cash flow curve; update the basis of estimates.
• Obtain approvals, baseline the budget, and route any future changes through integrated change control.

Quality & Acceptance Checklist

• Budget is time-phased and ties directly to the schedule and WBS.
• Basis of estimates is complete, with assumptions, data sources, and methods clearly stated.
• Contingency is inside the cost baseline; management reserve is outside and controlled by management.
• Indirects, taxes, fees, and procurement costs are included per organizational policy.
• Funding requirements and period-by-period cash flows are clear and realistic.
• No period exceeds approved funding limits after reconciliation.
• Currency, exchange rates, and escalation assumptions are documented.
• Approvals from sponsor and finance are recorded; version control is in place.
• Payment milestones align with contracts and expected deliverables.
• Key risks influencing contingency are identified and traceable.

Common Mistakes & Exam Traps

• Confusing cost estimates with the budget; the exam expects a time-phased baseline for control.
• Mixing up reserves; contingency belongs to the project team inside the baseline, while management reserve sits outside and needs approval to use.
• Ignoring overheads, taxes, or procurement-related costs, leading to underfunding.
• Failing to reconcile with funding caps, causing cash flow issues in certain periods.
• Changing the baseline without formal change control, or blending forecasts with the baseline.
• Double-counting or omitting risk costs tied to response plans.
• Assuming the lowest supplier quote is the budget; include all associated costs and reserves.
• Using earned value metrics here; EV is applied later during cost control after the baseline is set.
• Forgetting to time-phase contingency and to document its drivers.

PMP Example Question

Your cost plan exceeds the organization’s quarterly spending cap in Q3. What should you do next?

1. Request additional funds for Q3 to keep the schedule unchanged.
2. Resequence work and adjust the schedule to align spending with the funding cap.
3. Cut project scope to reduce Q3 spending without approval.
4. Move management reserve into the cost baseline to cover the gap.

Correct Answer: B — Resequence work and adjust the schedule to align spending with the funding cap.

Explanation: Funding limit reconciliation is part of determining the budget. You adjust timing of work to fit approved funding rather than changing scope or misusing reserves.