Project Management

Baseline Budget Development for Project Management

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Baseline Budget Development for Project Management
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Baseline Budget Development for Project Management

Project managers need to prepare a baseline budget for approval early on during the process. It’s an essential document that helps monitor projected and actual costs incurred during a project. Due to the focus on money, creating a baseline budget can be a daunting task but they are a great reference point at every stage of the project development.

In order to create a baseline budget in project management, managers should look at current spending levels to inform the document. They are a time-phased plan and although it can be hard to anticipate all costs early on, the budget can be redrawn when there is a change of scope.

If you’re undertaking a new project or looking to re-baseline your project, then this article is for you. We’re going to go over the importance of a baseline budget in project management and how to create one.

What is Baseline Budget

What Is a Baseline Budget?

In project management, baseline budgets are projections for direct and indirect costs. A budget will include reference points that can be used in performance analysis. As the project manager, you will be able to refer to the budget concerning short-term and long-term objectives.

One of the benefits of a baseline budget from an executive point of view is that it can help to prevent projects from going over budget. Although the actual costs may differ from the projections, a baseline budget can help costs from spiraling out of control.

During the early stages of planning a project, project managers should start putting together the baseline budget. Details that should be included in a budget are cash flow, overheads, cost breakdown, unit price analyses, staff, and contractor budget.

Creating one early can help the team to identify risks that could happen, the scope of work, indirect costs associated with the project, and the project duration. This information can help to inform your team as well as provide a timeline to the people you report to.

Here are some of the things that should be included in the baseline budget. Not all projects will incur the same costs but these are some of the most common costs:

Direct costs

These are variable costs that are directly linked to production.

  • Labor costs
  • Material costs
  • Rent
  • Machinery costs
  • Wages

Indirect costs

Indirect costs are fixed costs that occur as general business expenses.

  • Insurance & Depreciation
  • Running costs
  • Admin & Security
  • Additional overheads
  • General & Stationery supplies

Importance of a Baseline Budget

It’s an early challenge that is essential for project managers to tackle. Estimations need to be made properly to help establish clear targets and milestones. Not only can this be used by the team but is useful for other stakeholders such as company executives. The baseline can be used to justify budget requests for approval.

A budget needs to be created early in a project’s life cycle or when there is a change in scope. Time and costs are two essential parts of every project and they need to be well documented.

This way they can provide estimates of durations, spending, and revenue which is helpful for project performance measurement. You will also be able to include a breakdown of contractor costs of the deliverables as well as indirect costs.

Calculate all the costs separately to make the baseline budget clearer. Including proper detail level is an essential ingredient to making a great budget. Help yourself by calculating the costs of tasks and goods individually. This includes creating details for all materials used for each separate task.

Estimations made in the budget need to be clear and well defined otherwise it can make it harder to track and reach targets. When a baseline budget is rich in detail it becomes a really useful document to refer back to as the project progresses.

Tracking the budget

Tracking the Budget

Once you have crafted the baseline budget it will be time to get the plans approved. After the project and budget are given the go-ahead you will enter the next phase of tracking the budget.

Now the baseline budget is compiled with estimates and projected costs it can be used to monitor against the actual costs incurred. It’s useful for keeping the project on track and avoiding the development from exceeding the budget.

Break the budget down even further to account for the different phases and locations of a project. As phases conclude you’ll have a clear idea of how the actual costs are stacking up against projections and whether things are on target or not. If at any point you are coming in over or under budget, adjustments can be made if possible.

It is good practice for project managers to refer back to the baseline budget to understand the schedule and cost performance for the project. This can help to identify if there are any issues with the current budget and may inform when you should initiate a re-baseline.

Making Changes to the Baseline Budget

Making Changes to the Baseline Budget

The main reason for making changes to the baseline budget in project management is if there has been a change in scope. Otherwise, there usually won’t be a need to re-baseline unless there has been a call from management to initiate one. This could be due to a company-wide review of current spending.

Change in scope can happen during the development of a project when the client changes the requirements or deliverables. There may also be technical reasons that bring about the need for a re-baseline.

Once there has been a need to change the baseline budget the costs should be reevaluated to consider any changes in project conditions. The budget may need to be increased or reduced depending on the results of the re-baseline.

It’s common for new costs to be incurred during the development phase when unexpected events occur such as sickness within the team. Here are some of the reasons you may need to request an increase in the budget:

  • Increased contractor fees
  • Extra materials
  • Sickness pay
  • Additional staff costs
  • New equipment being brought in

Your company or client may ask for a re-baseline with the purpose of reducing the costs associated with development. There may be an opportunity to reevaluate the budget if the project has progressed smoother than expected.

Sometimes it may be necessary to redistribute staffing resources which can affect the cost and timeline for a project. It is not uncommon for tasks within projects to be over or underestimated. During the developmental phase of the project, this may become clear and warrant a change in scope.


Creating a baseline budget is an early task for project managers but one that is essential to do well. As an approved plan it is important to include as much detail as possible to satisfy the stakeholders and management. The level of detail included should match the scope of the project and estimates should be as precise as possible.

Usually, the budget is based on current spending levels and this can be subject to change depending on company performance and resources. Re-baselining the budget during the development of a project can be stressful especially when dealing with reductions.

However, creating a detailed report early in the project can continue to help the team during the life cycle of development. All possible direct and indirect costs should be considered and included. This will help to ensure the project stays on budget and progresses smoothly.

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