PROJECT BUDGETING
AND COST
ESTIMATION
OBJECTIVES
◦Recognize the need for cost estimation and budget in project
management;
◦Distinguish the various forms of project costs;
◦Value those factors that must be considered in improving the
quality for project times and costs;
◦Differentiate among methods of estimating costs for a
project;
◦Defend some issues that can influence the ability to carry out
a sensible and accurate project cost estimates;
◦Use the ways of data gathering to obtain input data for the
budget;
◦Develop processes that may assist in the estimation process.
Project Budgeting - is the process of estimating the total
projected costs needed to complete a project over a defined
period of time.
Cost estimation - is the process
of forecasting the cost and necessary
resources to complete a project.
04/22/2025 3
COST ESTIMATION AND BUDGET IN
PROJECT MANAGEMENT
Project budgeting and cost estimation and goes
hand in hand. A project budget is detailed, time-
phased estimate of all resource costs for a project.
• Cost Estimating is the process of approximating a
reasonable time-phased budget by identifying the
cost of resources required in order to complete
project activities.
for Estimating a Project's
Costs
1.It makes possible the project manager to
consider probable benefits against estimated costs
to see whether the project is logical.
2.It permits the project manager to distinguish
whether the necessary funds are obtainable to
sustain the project.
3.It provides as a guideline to help ensure that
there is adequate funds to finish the project.
04/22/2025 5
FOUR TYPES OF PROJECT COSTS
1.DIRECT VERSUS INDIRECT COSTS
oDIRECT COSTS ARE THOSE COSTS
DIRECTLY REL ATED TO THE PROJECT
LIKE L ABOR AND MATERIALS.
oINDIRECT COSTS ARE THOSE
NECESS ARY TO KEEP THE
ORGANIZATION RUNNING, BUT NOT
ACTUALLY ASSOCIATED WITH ANY
2. Recurring versus
Nonrecurring
Recurring costs are those that normally
continue to operate over the project's life
cycle.
§Nonrecurring costs are those charges
applied once at the start or end of the project
like preliminary marketing analysis, personnel
3.FIXED VERSUS VARIABLE
Fixed costs are those that stay constant
despite changes in the level of project
activities.
§ Variable costs are those that differ in direct
proportion to the changes in the level of
project activities.
4. Normal versus Expedited
Normal costs are those acquired in the regular
process of working to finish the according based
on the original, planned schedule consented by
all stakeholders at the start of the project.
Expedited costs are those unplanned costs
acquired to accelerate the completion of the
project.
04/22/2025 9
Factors Influencing the
Quality of Estimation
1. Past Experience
2.Project Uniqueness
3.Project Duration
4.People
5.Planning Range
6.Organizational Structure
7.Padding Estimates
8.Organizational Culture
9.Non-project Factors
04/22/2025 10
Methods of Estimating Cost
1.Analogous Estimating – this is an estimating
technique that uses costs along with measures of
scale like size, weight or complexity from the
previous project to estimate cost for similar future
project.
2.Parameter Estimating – this is an estimating
technique that uses a statistical relationship
between historical data and other variables.
3.Bottom-up Estimating – it is the method of 11
04/22/2025
4. Top Down Estimating – it is based on the collective
judgement and experiences of top and middle
management and available past data concerning similar
activities.
Project Cost Estimating
Issues
Short Initial Estimates
Unpredicted Technical Difficulties
Lack of Definition
Specification Changes
External Factors
04/22/2025 12
Creating a Project Budget
1.Top-down Budgeting
04/22/2025 13
04/22/2025 14
2. Bottom-up Budgeting
04/22/2025
1
04/22/2025
1
Ways to Improve the Process of
Cost Estimation and Budgeting
• Spend less time estimating alone and more time
discussing them.
• Make it a creative process, and don’t put a gun to
anyone’s head.
• Educate your clients and sponsors.
• Don’t assume your historical data is a viable
shortcut.
04/22/2025
1
• Implement rolling forecasts and
budgets.
• Budget to your plan.
• Communicate early and often.
• Involve your entire team.
• Plan for various scenarios.
• Track everything.
04/22/2025 18
With so Many Factors that could
Possible Cause Estimate Inaccuracies,
What can be done to make Project
Estimate the most Accurate?
04/22/2025 19
Process Changes for a
Manufacturing Company
is a systematic approach to dealing with a
company's transitions to new processes,
tools, or initiatives. With a strategic approach
to change, manufacturers can stay
competitive and agile by making the most of
their available materials, space, machines,
and labor.
04/22/2025 20
The Project Plan
Project plan is a series of formal documents that define the execution and control stages
of a project. The plan includes considerations for risk management, resource
management and communications, while also addressing scope, cost and schedule
baselines.
A project team is a group of people that work together to complete a project. Usually,
project teams are cross-functional—meaning they’re made up of individuals from different
groups or departments within the organization, working toward a common goal.
A work breakdown structure (WBS) visually organizes project deliverables into
different levels based on dependencies. It’s essentially your project plan in a visual form,
with your project objective at the top, then dependencies and sub-dependencies below. It
is a visual project breakdown.
A risk management plan is a comprehensive documentation of your organization’s risk
management process for special projects that offer opportunities to grow and reinvent. It
requires close collaboration between your risk department, senior executives and key
04/22/2025 21
Project Results
Project results are the measurable
outcomes — tangible or intangible —
achieved upon project completion. These
results are crucial for assessing success,
demonstrating impact, and guiding future
initiatives. They also offer accountability,
learning, and continuous improvement
opportunities, showing how resources
were used to meet goals.
04/22/2025 22
04/22/2025 23
