Lessons · Project management · the budget and the baseline
The budget and the baseline: the yardstick you will be measured against
The cost baseline is the sum of the work-package estimates plus contingency reserve, spread over time; its total is the budget at completion (BAC), and every later cost measurement is taken against it.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
What it is for
Month four, the finance director asks whether the project is over budget. Over which budget? The charter's rough figure, the bottom-up estimate, or the approved baseline? Only the baseline is an answer, because only the baseline was agreed and only the baseline moves through change control.
How to think about it
Roll the work packages up through the WBS to one total. Add the contingency reserve. That is the baseline and its total is BAC. Spread it over the months the work happens in, so that each month has a planned value. Then freeze it; from here it changes only by approved change.
Worked example
1.1 $40,000 + 1.2 $30,000 + 1.3 $50,000 + 1.4 $20,000 = $140,000The WBS rolled up.
Contingency reserve $10,000For the risks you identified. Part of the baseline.
BAC = $150,000Budget at completion. The yardstick.
Spread: months 1 to 5 planned at $20,000, $30,000, $40,000, $40,000, $20,000Planned value month by month; it is what earned value will be compared to.
Your turn
Write the line that turns the estimates into the baseline.
BAC = work packages + reserve
Solve one, graded on the server
The trap
Including the management reserve in the baseline. Management reserve sits above the baseline, for the unknown; the baseline holds the estimates and the contingency for known risks, and performance is measured against that.