Cost Estimate versus Budget ( PMP CONCEPT 22)

There are two processes within the cost knowledge area and planning process group: Estimate Costs and Determine Budget. Both are required in order to develop the project cost performance baseline.
Cost EstimateThe cost estimates are simply the costs associated with the work packages or activities within the project schedule. Depending on the work package or activity, the cost estimate may be determined using parametric, three-point, or analogous estimating techniques.It is important for all cost estimates to include any assumptions that were made, where did the estimate originate, who provided the information, level of confidence, etc.
BudgetThe budget is built using the cost estimates and the project schedule. The budget provides a view of how much the project is estimated to cost both from a total and a periodic perspective. This budget feeds the cost performance baseline which is then used as critical ingredient in performing earned value analysis and other cost management variance analysis techniques.The project budget must be in alignment with the organization’s funding limits in order to ensure the funding is available and has been appropriated.Example
The bathroom remodeling project will include the following cost estimates:

• Demolition - $3,000: Week 1

• Sheet rock - $2,000: Week 2

• Tile floor - $3,500: Week 3

• Fixture installation - $1,500: Week 4

• Painting - $800: Week 4

Therefore the total budget is $10,800:

• Week 1: $3,000

• Week 2: $2,000

• Week 3: $3,500

• Week 4: $2,300

Summary
Both cost estimates and budget are needed in order to determine the cost performance baseline and the project funding requirements.
Cost estimates are the estimated costs for each work package or activity, whereas the budget allocates the costs over the life of the project to determine the periodic and total funding requirements.