Question

Discuss in more detail what should a project manager do to prepare cost baseline.

Answer 1

A cost baseline is an time phased plan which needs to be approved. Once a detailed budget is created and approved, the project manager must publish this baseline and set it as a point of comparison to measure the progress of actual performance. One of the biggest challenges that a project manager faces is determining when to set the budget baseline. Creating a baseline is just a starting point from what to the performance must be measured against.

There will always be unknowns in the project for the project managers, especially when the project starts. A manager must understand that projects will always experience changes and evolve in order to ensure that the delivery of the scope defined. The baseline budget is a technique for measuring how project changes affect our budget and schedule.

Ideally, when there is a change in scope, only then new baselines should be added. If the scope remains the same, then there is no need for managers to add a new baseline. A budget represents an understanding of the project costs based on the scope of the project. The initial baseline is usually what gets budgeted in the financials of a company.

There can be two other reasons why a budget baseline may be changed by the managers:

When the corporation itself is asking for a re-estimation of all the projects for corporate budgeting purposes, the financial team may request the most latest estimates on the project even if the scope has not changed.
A 'significant' gap in one or more activities estimates has been identified. Significant re-estimates need to be communicated to project sponsors, and may warrant re-setting the project baseline. In such cases, the original baseline needs to be retained as historical information.
When baselines are changed, it is important for managers to document and understand the reasons for this change. Any baseline changes must be posted in the project status comments by the managers. The change itself should be reviewed and approved by a Change Control Board before modifying the budget baseline.