A baseline budget gives a breakdown of all expected costs of a project. A properly managed project will include a baseline budget so progress may be monitored against expectations. A typical baseline budget contains individual items under the two broad categories of “materials” and “labor.” A baseline often includes a time-phased plan.
A baseline budget must include direct costs, indirect costs, possible contingencies, and expected profit. Direct costs include materials, labor and equipment. Indirect costs include overhead for office space and staff not directly involved with the project, as well as costs for telephones, stationery, postage, travel, taxes and fees.
Adhering to a budget stimulates creativity. When members of a project team have a “money is no object” attitude, they tend to throw money at problems instead of finding creative solutions to them.
Changing the Baseline
The budget baseline for a project may change for two reasons. The scope of the project may expand, requiring new or more expensive budget items. During the course of the project, one or more tasks may have been underestimated and the baseline must be updated.
Busting the Budget
Evaluating the progress of the project against the baseline offers the organization the opportunity to change the scope of a project or abort it. A project with heavy cost overruns might expose a weakness in the original estimation of potential profitability, or a weakness in the project manager. Without the baseline, measuring the success or failure of the project is impossible.
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