5.2.2 Issues in Creating a Project Budget*

A number of important issues go into the creation of the project budget, including the process by which the project team and the organization gather data for cost estimates, budget projections, cash flow income and expenses, and so forth. The methods for data gathering and allocation can vary widely across organizations; some project firms rely on the straight, linear allocation of income and expenses, without allowing for time. For example, while it may be common to allocate an amount to cover the cost of producing one work package in the overall project, some firms will allocate that amount as a one-time expense, while others will recognize that the costs accrue over the period of time necessary to complete the work package (say, 3 months). While the method used may not matter when considering the project's overall budget, the difference can have an important impact on cash flow for the project. It is important to recognize the accounting and budgeting system used within a particular organization when preparing the project's budget in order to minimize conflicts with cost control personnel based on misinterpretation of the budget data.

*Please Note: Portions of section 4.2.2 were adapted from Pinto, J. K. (forthcoming). Project Management: Achieving Competitive Advantage. Upper Saddle River, NJ: Prentice Hall.Used with Permission.