You first think about how much a project will cost in the initiation stage.
At project initiation, cost management and project financials are really about understanding. Understanding what you are doing and why, and how much you get out and how much you need to put in.
Firstly, consider whether it aligns to the organisation’s financial strategy, and whether it will create a suitable return. You’ll also want to work out how long it will take to get this return, or work with your financial management team to do so.
The project charter should include a description of the financial success of the project and how it will be measured.
You’ll use these as the success criteria for how the project will be judged on financial performance at the end.
You might be able to add costs to any risks mentioned at this point in the project charter.
The tips here are all discussed in more detail in this book Project Management Accounting. It’s a great primer on the financials relating to projects and it goes into a lot of detail so it’s handy for beginners and those with more experience.
Planning Cost Management Process [Video]
In this video I talk about the cost management processes.
In this video I share the answers to a couple of questions raised during PMXPO:
I didn't get a chance to answer these during my presentation on 10 Ways to Market Your Project (which you can watch here).
This article summarises four of the key terms that you'll come across when you start working with project estimates.
Bottom up estimating
This estimating term describes how you break down your project and estimate (as the name suggests) based on the smallest components.
Watch the video here: Bottom up estimating video
This term describes how you can use statistical and logical calculations to work out how long a project will take, based on what you know about the individual activities.
Watch the video here: Parametric estimating video
Analogous estimating relies on previous experience to calculate the estimate.
Watch the video here: Analogous estimating video
Three point estimating
Three point estimating is discussed in more detail in this article but the basic premise is that you use a formula to calculate your overall estimate. The formula is:
This calculation will leave you with a weighted estimate of the budget for the activity (although you could use it for scheduling time and work out your estimate in days). It will be weighted in favour of the most likely cost for that task, but it will also allow for the fact that things might go well – or not.