Project Management: A Managerial Approach, 8th Edition

CHAPTER 7

Budgeting: Estimating Costs and Risks

In Chapter 6, we reviewed the planning process and gave some guidelines for designing the project plan. We now begin our discussion of PMBOK knowledge area 4: Project Cost Management. We treat the subject here in terms of planning (or budgeting) for the costs of project resources but we will reconsider the issue in Chapter 9 when we discuss the allocation of resources to project tasks.

PMBOK Guide Chapter 7

First priority is, of course, obtaining resources with which to do the work. Senior management approval of the project budget does exactly that. A budget is a plan for allocating resources. Thus, the act of budgeting is the allocation of scarce resources to the various endeavors of an organization. The outcomes of the allocation process often do not satisfy managers of the organization who must live and work under budget constraints. It is, however, precisely the pattern of constraints in a budget that embodies organizational policy. The degree to which the different activities of an organization are fully supported by an allocation of resources is one measure of the importance placed on the outcome of the activity. Most of the senior managers we know try hard to be evenhanded in the budgetary process, funding each planned activity at the “right” level—neither overfunding, which produces waste and encourages slack management, ...