Budgets

A project budget is the approved amount for delivering the scope, broken down so that each part of the work has its own allowance and someone responsible for it. It is built from the cost estimate but is more than a number: it is a control tool, phased over time and tied to the work breakdown structure.

Budgets mature with the design. A concept estimate, from cost per square metre or per kilometre of similar projects, may be accurate only to plus or minus 30 percent or more. A detailed estimate from measured quantities and rate analysis narrows that to around plus or minus 10 percent. Each stage should state its accuracy range and its assumptions. The approved budget at award, the cost baseline, includes the contract sum, owner's costs such as land, design, supervision and utility shifting, taxes, and contingency reserves for known risks. A management reserve for unknown risks is held separately and released only by approval.

Phasing the budget month by month, using the schedule, gives the planned value curve, the S-curve against which progress and cash needs are measured. Budget transfers between items, change orders and use of contingency are recorded formally so the current budget always reconciles to the original. Public works budgets also follow financial rules for sanction, technical approval and re-appropriation.