- Imagine driving down a road without speed limits.
There'd be no way to get pulled over for speeding
as there is no baseline for what speed you're allowed to go.
You might think that's great, but if you're like me
you'd probably drive too fast
around a curve and end up in a ditch.
Our projects need baselines to ensure we continue safely
through our project lifecycle.
Once your budget is completed and agreed to,
it's time to baseline the budget.
A baseline for your budget provides a line
in the sand compared to predicted costs.
PMI's baseline definition is "the approved version
of a work product used
as a basis for comparison to actual results."
So, as the project progresses
the actual costs are measured against the agreed baseline.
With a baseline, you'd have a chance to determine
if you're over or under budget.
Having a baseline also enables you to modify the budget
if stakeholders request a change to your project's scope.
If that change is approved
you adjust the original baseline to reflect impacts
to project costs or schedule.
However, before the budget is approved,
you'll want to think about contingency reserve.
PMI's definition of contingency reserve is
"time or money allocated in the schedule or cost baseline
for known risks with active response strategies."
The simplest way to figure
out your required contingency reserve
is to allocate a risk factor for the project.
For example, if the project has an overall low risk factor,
you could allocate an additional 5%
of the budget for contingency reserve.
However, you may need to provide 20%
to the contingency reserve if you have a high risk project.
The key is to use risk as your barometer to aid
with determining the required contingency.
A sample line chart with plots for the budget
baseline and contingency is included in the exercise files.
Once the contingency reserve funds have been agreed upon
they can be added to the original project budget estimate.
This new figure is presented
to the sponsor for funding approval.
The contingency reserve funds should not be mixed
with the original budget.
For example, if the original budget was a hundred thousand
and the contingency reserve is 10,000
the total funding to be requested is 110,000.
However, you should use the $100,000 budget when
you report project progress.
Pretend that $10,000 is not even there.
Hopefully, you'll never need it.
A baseline in contingency can restrict us a lot
like speed limits, but they are critical to helping us get
to our project outcomes without being lost in a ditch.