Microsoft Project 2013: The Missing Manual

Putting a Price Tag on Your Project

It’s the old chicken-and-egg scenario—which comes first, the project’s budget or its cost estimates? Either way, your organization wants to know how much the project will cost. Or, looking at it from the other direction, what’s the maximum this project should cost to get the financial benefit the organization requires?

The financial benefit comes down to whether the project is worth the effort. How much money will the project make or how much will it save? What will it cost to get that result? For example, suppose your boss has an idea for a new product. The bean counters think it could earn more than $3,000,000 over the product’s life cycle. The company has to decide how much it’s willing to spend on the development project and how much profit it needs to earn to make the project worthwhile. As the project manager, you’re expected to provide cost estimates based on the agreed-upon project scope. The hard part is making your project cost estimate agree with the budget the company has in mind.

One approach to calculating the price tag is to develop your schedule, assign resources to tasks, and let Project calculate the resulting costs. You can then use that cost figure as you go, hat in hand, to present the budget. The powers that be often reduce that number, although they also set aside contingency funds and management reserve (Don’t Pad Estimates) as insurance.

Another method for setting the project budget is capital budgeting, which is a set of ...