Quick Definition:
Project Budgeting is the process of estimating the total cost of all activities, resources, and materials required to complete a project. It serves as the financial baseline for tracking project performance.
Cost Estimation Techniques
Before you can build a budget, you need to estimate costs. Common techniques include:
- Analogous Estimating: Using the cost of previous, similar projects as a basis.
- Parametric Estimating: Using statistical relationships (e.g., cost per square foot).
- Bottom-Up Estimating: Estimating the cost of individual tasks and summing them up.
- Three-Point Estimating: Calculating an average of optimistic, pessimistic, and most likely costs.
Contingency Reserves
Always include a contingency reserve (usually 10-15%) to cover “known unknowns”—risks that you have identified but haven’t occurred yet.
