What is a Cost Baseline?

The time-phased budget that becomes your performance measurement yardstick

Project Cost ControlCost Baselines & BudgetsFree preview

⏱️ About 12 min

A project budget totals $800,000, but how much of that should have been spent by month three? The cost baseline answers this.

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The big idea: The cost baseline is the time-phased budget approved for the work to be performed, excluding management reserve, and serves as the Performance Measurement Baseline (PMB).

🎯 By the end, you'll be able to

Define the cost baseline and its relationship to the PMB.
Distinguish between the total budget, management reserve, and the cost baseline.
Calculate the Budget at Completion (BAC) from a time-phased budget.

📎 Helpful to know first

Basic familiarity with project budgets and project lifecycles.

The foundation of cost control

A cost baseline is the approved version of the project budget, time-phased over the project schedule. It does not include management reserves. Once approved, it becomes the Performance Measurement Baseline (PMB) against which actual performance is measured.

\[ BAC = \sum_{t=1}^{n} B_t \]

Reading the formula

The Budget at Completion (BAC) is the sum of all periodic budgets ($B_t$) from period 1 to period $n$. The cost baseline is the cumulative distribution of these periodic budgets over time.

⚠️ Baseline vs. Budget

The total project budget includes the cost baseline plus any management reserve. The cost baseline itself is the time-phased allocation of the approved budget for scheduled work.

🎮 Cost Baseline Builder LIVE

Predict first: Predict first: if monthly budgets are [120k, 180k, 240k, 160k, 100k], what is the cumulative cost at month 3?

View periodic budgets and the cumulative S-curve of the cost baseline.

📝 Worked example: A project has five monthly budgets of $120k, $180k, $240k, $160k, and $100k. What is the cumulative budget at month 3 and the BAC?

1. Cumulative at month 1: $120k.
2. Cumulative at month 2: $120k + $180k = $300k.
3. Cumulative at month 3: $300k + $240k = $540k.
4. BAC is the total sum: $120k + $180k + $240k + $160k + $100k = $800,000.

✓ Cumulative at month 3 = $540,000; BAC = $800,000

✏️ Practice: Given the same budgets [120k, 180k, 240k, 160k, 100k], what is the cumulative budget at month 4?

💡 Hint

Add the month 4 budget ($160k) to the month 3 cumulative total ($540k).

Answer

Cumulative at month 4 = $700,000

Check your understanding

1. What is the relationship between the cost baseline and the Performance Measurement Baseline (PMB)?

The approved cost baseline serves as the PMB for measuring project performance.

2. If a project has monthly budgets of $50k, $100k, and $50k, what is the BAC?

BAC is the sum of all periodic budgets: 50k + 100k + 50k = 200,000.

✅ Key takeaways

The cost baseline is the time-phased budget excluding management reserve.
Once approved, it becomes the Performance Measurement Baseline (PMB).
The BAC is the total value of the cost baseline.

➡️ Understanding the cost baseline sets the stage; next, we will break it down using the Work Breakdown Structure and Control Accounts.

Ready for the next step? Back to the course outline →