A budget is the approved estimate for a portfolio, program, or project, as well as for any work breakdown structure (WBS) component or schedule activity. It represents the allocated financial resources and serves as a baseline for cost control and performance measurement throughout the project lifecycle.
Key Aspects of a Budget
- Defines Financial Limits – Establishes spending constraints for the project.
- Includes Cost Components – Covers labor, materials, equipment, and overhead.
- Used for Performance Tracking – Helps monitor actual vs. planned expenditures.
- Requires Change Control for Adjustments – Modifications must go through formal approval processes.
Budget Components
- Project Cost Baseline – The approved, time-phased budget for project activities.
- Contingency Reserves – Funds set aside for identified risks.
- Management Reserves – Extra funds allocated for unforeseen risks.
- Funding Requirements – The timing and amount of financial resources needed.
Example Scenarios
Software Development
- A company sets a budget of $1M for an ERP system implementation, allocating funds for development, testing, deployment, and training.
Construction Project
- A construction firm approves a $10M budget for a new office building, including material costs, labor, and contingency reserves.
Marketing Campaign
- A marketing department sets a $200K budget for a product launch, covering advertising, content creation, and influencer partnerships.
Why a Budget Matters
- Ensures Financial Discipline – Prevents overspending and resource misallocation.
- Supports Decision-Making – Provides clarity on funding availability.
- Enhances Stakeholder Confidence – Demonstrates financial planning and control.
- Enables Performance Measurement – Helps track cost variances and optimize spending.
See also: Cost Baseline, Cost Management Plan, Funding Requirements, Contingency Reserves, Performance Measurement Baseline.