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templates or worksheets that you can use to make this job easier. They will also help

you in identifying hidden costs you may not have thought of and may list the rates
from the vendor agreements the organization has entered into.

Templates may also be a good source of rate estimates for internal resources. The
salary of the people on your project will vary based on both their job title and specific
experience. Your organization may require you to use a loaded rate, which is typically a
percentage of the employee’s salary to cover benefits such as medical, disability, or
pension plans. Individual corporate policies will determine whether loaded rates

should be used for project cost estimates.

Get estimates from the people doing the work. A bottom-up estimate is the
most accurate because effort estimates are provided for each activity and then rolled
up into an overall estimate for the deliverable or the project. The person performing
the activities should be the one to develop the estimate. If your project includes tasks
new to your team or uses an untested methodology, you may need to look outside for

assistance with work effort estimates. You could consult published industry standards
or hire a consultant to assist with the estimating process.

Document any assumptions you have made. Make certain to document any
assumptions you’ve made when performing cost estimates. For example, you may need
to note that you are assuming the rate sheet you’re using to determine contractor costs
will still be valid once the work of the project begins.

The cost estimates will be used to create the project budget, which you’ll learn about

next.

Creating the Project Budget

When you have the cost estimates completed, it’s time to prepare the budget.
Budgeting is the process of aggregating all the cost estimates and establishing a cost
baseline for the project. The cost baseline is the total expected cost for the project.

Once approved, it’s used throughout the remainder of the project to measure the
overall cost performance.

The project budget is used to track the actual expenses incurred against the estimates.
You’ll look at tracking and reporting expenses more closely in the “Expenditure
Tracking and Reporting” section later in this chapter.

Before learning about the mechanics of the budget itself, you should make sure you

have an understanding of the processes within your organization regarding budgets,
authority levels, how expenses are approved, and more. Here are a few questions you
can use to help get you started:

Are all project expenses submitted to the project manager for approval?

What spending authority or approval levels does the project manager have
regarding project expenses?

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