What Is the Meaning of a Budget Baseline?

Budget baseline is a key component of project management.
Budget baseline is a key component of project management. (Image: project plan image by Christopher Hall from Fotolia.com)

The budget baseline is an extension of the budget that ties it to a timeline. It is used through the life of the project as a basis for ensuring the project is on budget, both timewise and monetarily. Periodic adjustments to the baseline may be required if the actual numbers vary greatly from the budgeted numbers.


Revenues are the monies coming into the project, such as sales projections. Since the planners have no concrete idea how much money they will earn in the future, they spend their time analyzing historical data for the company, combine with insight into future trends, such as interest rates, custom growth. If the project earns a flat fee for the duration of the contract, the revenues are the amount of the contract.


Project costs make up the expense portion of the budget baseline. These costs will include direct costs, such as labor and materials, as well as indirect costs, such as a portion of the overall utilities, office help and building maintenance. While the exact amounts may not be known at the time of budget planning, management can look at historical data for similar projects and extrapolate for inflation to come up with a realistic budget. The difference between the revenues and expenses is the profit in the project.


The budget baseline considers the timeframe of the project. For example, if the project is scheduled for completion in six months, the baseline may break the budget amount down into monthly figures. This gives management a better way to compare actual amounts to budgeted and to adjust accordingly. The baseline may instead break down based on how often the contracted amount is paid out. For example, if the contract calls for a 10 percent payment for work to begin and no additional payments until the project is 25 percent complete, the budget baseline may break the budget down based on amount complete.


One of the identifying factors between a budget and a budget baseline is the time factor. Typically a baseline also includes an element for tracking time. If the project is scheduled for completing in six months, the baseline may tie 50 percent of the monetary budget to 50 percent completion. By comparing actual expense to the baseline when the job is estimated a 50 percent complete, management knows whether they are apt to stay within budget constraints.

Working budget

A budget baseline is only valuable if it is used as a working tool toward ensuring a profit. This means comparing the baseline numbers to actual revenues, expenses and time on a regular basis and making necessary adjustments to the baseline in the event of large variances. It means adjusting the budget for change orders, changes in costs and for unexpected events, such as rain delays, which can mean paying more in overtime costs to finish the project on time.

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