How to Estimate Cost Baseline for Projects
Cost Baseline for Projects is one of the essential tasks that you need to perform for projects. After you might have estimated project costs, you need to consolidate the costs into a project budget and compare the cost baselines.
Costs are one of the major constraints of any project, and your ability to manage the project’s cost will directly correlate to its success or defeat. You need to be able to employ sound methodology when estimating costs and carefully monitor expenditures throughout the project lifecycle.
In addition, you need to be able to track project costs associated with each work package in the work breakdown structure as the points in the project lifecycle when those costs will be incurred. By establishing cost baselines for projects, you are setting up cash inflow for the project, and measure cost performance.
A cost baseline for projects can be seen as a time-phased budget that will monitor and measure cost preference throughout the project lifecycle. It is developed by adding the estimated cost of the project component by period.
The cost baseline typically includes a budget contingency to accommodate the risk of incurring unidentifiable but normally occurring costs within the defined scope. Cost baselines will vary from project to project, depending on each project’s unique budget and schedule.
Once the baseline is established, the cost becomes a commitment from the project manager’s perspective. The Project Manager should try to closely match the project’s committed funds to the baseline from a timing perspective.
Many project management software packages can create an S-Curve of the cost baseline for you. A generic example of a cost baseline displayed as an S-Curve is here.
Cost is plotted on the Y-axis and time on the X-axis. It is developed by totalling the estimated project cost by period, this cost-performance baseline shows how the cumulative planned project costs are distributed across the project’s duration.
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