Project Management in Practice, Fourth Edition

Chapter 4. Budgeting the Project

Having finished the planning for the technical aspects of the project, there is one more important element of planning to finish that then results in the final go-ahead from top management to initiate the project. A budget must be developed in order to obtain the resources needed to accomplish the project's objectives. A budget is simply a plan for allocating organizational resources to the project activities.

But the budget also serves another purpose: It ties the project to the organization's aims and objectives through organizational policy. For example, NASA's Mars Pathfinder-Rover mission embedded a new NASA policy—to achieve a set of limited exploration opportunities at extremely limited cost. In 1976, NASA's two Viking-Mars Lander missions cost $3 billion to develop. In 1997, however, the Pathfinder-Rover mission cost only $175 million to develop, a whopping 94 percent reduction. The difference was the change in organizational policy from a design-to-performance orientation to a design-to-cost orientation.

In Chapter 3, we described the project planning process as a set of steps that began with the overall project plan and then divided and subdivided the plan's elements into smaller and smaller pieces that could finally be sequenced, assigned, scheduled, and budgeted. Hence, the project budget is nothing more than the project plan, based on the WBS, expressed in monetary terms and it becomes a part of the Project Charter.

Once the budget is developed, ...