# Calculating the Total Project Budget

This is the process of aggregating the estimated costs of individual activities or work packages to establish a cost baseline. This baseline includes all authorized budgets, but excludes management reserves.

Cost aggregation of the work packages produces the cost estimate of the project. Adding the cost of risk responses and contingency reserves produces the cost baseline. Adding the management reserves, which are not controlled by the project manager but by management, to the cost baseline, provides the cost budget.

If the funding for the whole project is incremental, then care must be taken to ensure that the project does not run out of money as a result of getting too far ahead of the schedule.

The cost performance baseline specifies what costs will be incurred and when. This matters because most projects will not receive their funding as a lump sum at the beginning but will be financed according to a monthly or quarterly budget. This means that the project manager will need to indicate when funds need to be available.

The simplest way to produce a cost baseline would be to aggregate all of the anticipated costs of the project and assume that they would be needed in proportion to the planned timescale.

For example,
Project Total cost was \$100,000
Project planned to take 20 weeks
Then a simple cost graph could be produced with the vertical axis calibrated in dollars and the horizontal axis calibrated in weeks.

You could produce a simple cost graph by assuming that the planned cost per day was linear, that is as a straight line coming from the origin to a point that is aligned to \$100,000 on the vertical axis and 20 weeks on the horizontal axis as shown:

We have just created the cost performance baseline for that project as it takes the estimated project expenditures and aligns them with dates on the calendar. This allows the organization to plan for cash flow and to make suitable arrangements in advance so that the funds are available when needed and not before.

This might be accurate enough for a very simple project where both the labor and material costs were fairly constant from day-to-day. But for projects with any degree of complexity it is necessary to produce separate cost baselines for different categories of expenditure, such as human resources at different labor rates, plant, materials and other equipment.

For this reason the cost performance baseline may consist of several sub-baselines, which can be aggregated to produce totals. In most projects the rate of expenditure is not linear but follows an 'S' shaped curve as shown.

The reason for this is that the rate of spent at the beginning and end of the project is typically lower than that during the execution phase.

 Key Points The total project budget can be calculated by aggregating the estimated costs of individual activities or work packages to establish a cost baseline that specifies what costs will be incurred and when. Most projects will not receive their funding as a lump sum at the beginning but will be financed according to a monthly or quarterly budget, so care must be taken to ensure that the project does not run out of money as a result of getting too far ahead of the schedule. Knowing what funds need to be available would be easy if labor and material costs were fairly constant from day-to-day, but this is seldom true. For this reason the cost performance baseline may consist of several sub-baselines, which can be aggregated to produce totals. In most projects the rate of expenditure is not linear but follows an 'S' shaped curve.

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