Plan and manage finance & budget

PMP ECO · Process (41%) · Task Pr6. Estimate the cost, set a baseline to control against, hold the right reserves, and track spend so surprises are small and early.

What it is

Cost management runs: estimate costs → aggregate them into a time-phased cost baseline → control spend against it (typically with Earned Value). Two reserves matter: contingency reserve for known-unknowns (identified risks) sits inside the cost baseline; management reserve for unknown-unknowns sits outside it. Cost baseline + management reserve = the budget.

Why it matters

• A time-phased baseline is what makes "are we over budget?" answerable at any point, not just at the end.
• Reserves, sized and owned deliberately, are the difference between absorbing a shock and blowing the budget.

Where you do it in VanillaPM

The Budget workspace holds the cost estimate and cost baseline (rolled up along the WBS), the reserves, and multi-currency handling with a frozen FX snapshot. Earned Value (on Control → Overview) computes PV, EV, AC and the CPI/SPI indices for cost and schedule performance.

Walked example — Coral Ridge Resort

Coral Ridge is baselined at $48M, with a $2.4M contingency (for identified risks — piling redesign, monsoon overrun) inside the baseline and a $1.2M management reserve outside it, giving a $51.6M budget. Because façade and lifts are imported, costs span currencies — the project freezes an FX snapshot so conversion doesn't drift the baseline. As the frame rises, EVM reads the health: if CPI < 1 the build is over-spending against the work earned, and the forecast EAC updates the expected out-turn.

The artefact

• Cost baseline (time-phased) + reserves — the financial plan.
• Earned-Value metrics — PV/EV/AC, CPI/SPI, EAC/ETC/VAC.

Best practices & pitfalls

• Do keep contingency (in-baseline, PM-controlled) separate from management reserve (out-of-baseline, sponsor-controlled).
• Do freeze an FX rate for a multi-currency budget so currency swings don't masquerade as cost variance.
• Pitfall: confusing cost baseline with budget — the budget includes the management reserve; the baseline doesn't.

On the PMP exam

Cost is formula-heavy: know EV, PV, AC, CV, SV, CPI, SPI, EAC, ETC, VAC, TCPI and how to read them (CPI < 1 = over budget; SPI < 1 = behind schedule). Know contingency vs management reserve and that cost baseline + management reserve = budget. Estimating types (analogous, parametric, bottom-up, three-point) show up too.