---
title: "Cost budgeting"
subject: "ICT Project Management"
chapter: 9
key: "semester_7/ict_project_management:cost-budgeting"
source: https://www.bctengineer.com/q/semester_7/ict_project_management/cost-budgeting
site: BCT Engineering
---

# Cost budgeting

ICT Project Management · Chapter 9: Project Cost Management

- Asked in: year not given
- Video: [How to Create a Project Budget](https://www.youtube.com/watch?v=ecs9oUe2dZk) — Adriana Girdler
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/ict_project_management/cost-budgeting
- Whole chapter: https://www.bctengineer.com/md/semester_7/ict_project_management/chapter-9

## Question

What do you mean by cost budgeting?

## Short answer

Cost budgeting aggregates activity cost estimates to establish an authorized time-phased cost baseline. It adds contingency reserves for known risks and management reserves for unknown risks, producing a cumulative S-curve for performance measurement.

## Answer

**Cost budgeting** (Determine Budget) is the process of aggregating the estimated costs of individual activities or work packages to establish an authorised cost baseline. It allocates the overall cost estimate to individual work items over time, so that the project's performance can be measured against it.

#### Inputs, tools and outputs
| Inputs | Tools | Outputs |
|---|---|---|
| Activity cost estimates, basis of estimates | Cost aggregation | Cost performance baseline (S-curve) |
| Scope baseline (WBS) | Reserve analysis | Project funding requirements |
| Project schedule | Expert judgment | Updates to project documents |
| Resource calendars, contracts | Historical relationships | |
| OPA | Funding limit reconciliation | |

#### Steps
1. Estimate cost of each work package.
2. **Aggregate** upward to control accounts and project total.
3. Add **contingency reserve** (for identified risks) to get the cost baseline.
4. Add **management reserve** (for unknown risks) to get the project budget (not part of baseline).
5. **Time-phase** the budget by schedule: cost per period.
6. Reconcile with the **funding limits** of the organisation.
7. Approve the cost baseline.

```text
Work package estimates
   -> Control accounts -> Cost baseline (+ contingency)
   -> + Management reserve -> Project budget
```

#### Cumulative cost curve
```text
Cost
  |            ___--- Budget
  |        __--
  |    __--    (S-curve)
  +---------------------- time
```

#### Importance
- Gives a standard to measure and control cost (earned value).
- Shows when funds are needed.
- Supports approval and funding decisions.

**Example:** A 10-month web project costs Rs 20 lakh. Budget by month shows heavy spending in months 4-8 during development; a 10% contingency (Rs 2 lakh) is added.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. What is cost budgeting?
   A. Aggregating activity or work package estimates to establish an authorised cost baseline
   B. Auditing spend
   C. Closing accounts
   D. Estimating one activity
   Answer: A. Determine Budget aggregates estimates into a baseline to measure performance. (Key point: Definition)

2. How do cost baseline and project budget differ?
   A. Budget excludes contingency
   B. Baseline includes contingency; budget adds management reserve
   C. They are identical
   D. Baseline includes management reserve
   Answer: B. Management reserve is added to the baseline to get the budget and is not part of the baseline. (Key point: Baseline vs budget)

3. What does time-phasing do?
   A. Estimates risk
   B. Allocates budget across periods by schedule, producing the S-curve
   C. Cuts WBS levels
   D. Removes reserves
   Answer: B. Time-phased budget gives cost per period and the cumulative S-curve. (Key point: Time-phasing)

## Related in ICT Project Management

- [Project cost versus product cost](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Aproject-vs-product-cost) — ICT Project Management, chapter 9
- [Cost estimating and types of estimates](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acost-estimating-types) — ICT Project Management, chapter 9
- [Cost of quality](https://www.bctengineer.com/question.md?key=semester_7%2Fict_project_management%3Acost-of-quality) — ICT Project Management, chapter 10

## Related in other subjects

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- [Case study: new system vs existing (cost, manpower)](https://www.bctengineer.com/question.md?key=semester_5%2Finstrumentation_ii%3Acs-cost-manpower-automation) — Instrumentation II, chapter 10, asked 4×
- [Proposal for computer lab: title, technical, cost](https://www.bctengineer.com/question.md?key=semester_5%2Fcommunication_english%3Aproposal-computer-lab-parts) — Communication English, chapter 6, asked 2×
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