Cost budgeting is very important in project management. It is the aggregation of the estimated costs of individual tasks to establish a cost baseline. It is part of the planning process group that allows the stakeholders to determine the cost of the entire project.
There are different tools that allow project managers to do cost budgeting and one of the methods is the funding limit reconciliation. It involves the comparison and adjustment of the funding limits and the estimated costs by refining the scope and schedule of the project activities. It is important to take note that the expenditure of the funds should be reconciled with the funding limits of the project. A difference or variance on the planned expenditure and the funding limit usually causes the need for rescheduling of the work to meet the rate of the expenditures. This is done by placing the date constraints of a particular work activity to the project schedule.
Most organizations usually have limited resources to fund their projects and this affects the cash flow of the entire organization. In most cases, the funding is based on every quarter or for the fiscal year. It is important for the project budget to follow the constraints imposed by the funding limit reconciliation.
For instance, if a project manager has outsourced part of a project and the vendor delivers the work in the first quarter but payment was planned for in the second quarter, the project manager do not have any funds to pay for the services rendered by the vendor for the first quarter. Thus, the funding limit reconciliation is used to prevent the large variation in the expenditure of the funds for the project to allow the project manager to pay the vendor.
This particular project management technique often leads to the revision of the schedule as well as the allocation of the resources. This, the budget does not only impact the cost but also the scope of work and the schedule.
This term is defined in the 5th edition of the PMBOK.