Project Funding Requirements and Strategic Funding Choices
PMBOK v8 Definition
Project funding requirements are the total funding requirements and periodic funding requirements (e.g., quarterly, annually) that are derived from the cost baseline. The cost baseline includes the projected expenditures plus the contingency reserves. The total funds required are those included in the cost baseline plus management reserves, if any. The budget at completion (BAC) is the sum of all budgets established for the work to be performed.
Why It Matters for the Exam
This concept appears frequently in PMI exam questions related to the Finance Performance Domain, specifically in questions about cost management, budgeting, and resource allocation. Exam questions test your understanding of how funding requirements are calculated, the difference between cost baseline and total funding, and how funding proposals are structured to secure project resources.
Key Points to Remember (for the exam)
- Funding Sources: Funding can come from sources either internal or external to the project's performing organization, including internal organizational budgets, customer contracts, grants, or customer-driven "crowdfunding"
- Funding Requirements Components: Total funding requirements = cost baseline (projected expenditures + contingency reserves) + management reserves (if any)
- Funding Proposals: Projects often require dedicated funding efforts either before or after the projects have started; certain phases may require specific funding requests to cover approved budgets
- Funding Strategy Elements: Must include documentation of strategic funding choices, procedure to account for fluctuations in currency exchange rates, and procedure for project cost recording
- Value Proposition: Estimated costs and reserves are calculated as part of a business value proposition, which is then used to request needed funds from appropriate internal or external funding source
- Funding Limit Reconciliation: A key input to the Develop Budget process that ensures funding is available when needed
- Financial Constraints: Budget is generally the primary financial constraint but not the only one; sometimes projects are restricted to use of a given type of financial resource
Typical PMI Exam Example
A project manager is preparing a funding proposal for a new phase of an ongoing infrastructure project. The cost baseline shows projected expenditures of $2.5 million plus $300,000 in contingency reserves. The organization requires an additional $200,000 in management reserves. What is the total funding requirement that should be requested?
Answer: $3.0 million ($2.5M + $300K + $200K)
PMI Exam Traps
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Trap: Confusing cost baseline with total funding requirements Reality: Cost baseline = projected expenditures + contingency reserves; Total funding = cost baseline + management reserves (if any)
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Trap: Assuming funding is always evenly distributed across the project Reality: Funding often occurs in incremental amounts and may not be evenly distributed; periodic funding requirements must be specified
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Trap: Thinking funding only happens before project start Reality: Projects often require dedicated funding efforts either before or after the projects have started; certain phases may require specific funding requests
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Trap: Believing budget is the only financial constraint Reality: Financial constraints include budget AND restrictions on type of financial resource used
Important PMI Connections
| Related Concept | Relationship Type | Exam Attention Point |
|---|---|---|
| Cost Baseline | Input to funding requirements | Funding requirements derived from cost baseline; includes contingency reserves |
| Management Reserves | Component of total funding | Added to cost baseline to calculate total funds required |
| Business Value Proposition | Basis for funding requests | Estimated costs and reserves calculated as part of value proposition |
| Develop Budget Process | Process that produces cost baseline | Performed once or at predefined points; determines cost baseline for monitoring |
| Risk Register | Input to Develop Budget | Used for funding limit reconciliation; contains known risks |
Quick Review Questions
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What are the three elements that must be documented in a project's funding strategy according to PMBOK v8?
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A project has a cost baseline of $1.2 million with $150,000 in contingency reserves. Management requires $100,000 in management reserves. What is the total funding requirement?
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When can projects require dedicated funding efforts: before start, after start, or both?
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What is the difference between the cost baseline and the total funds required for a project?
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Besides budget, what other type of financial constraint might a project face?
PMBOK v8 Reference
Section 2.4 - Finance Performance Domain Section 2.4.2.3 - Develop Budget