Project Cost Management

 

Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.
(from PMBOK® Guide, Fifth Edition)

For you that are new to Project Management, how should you approach studying this Knowledge Area? It’s recommended to have quick review of what it is and how it interacts with other knowledge areas, and then an in-depth study of all its components and interactions.

This knowledge are is composed of the following processes:
•Plan Cost Management—The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs.
•Estimate Costs—The process of developing an approximation of the monetary resources needed to complete project activities.
•Determine Budget—The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
•Control Costs—The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.
(from PMBOK® Guide, Fifth Edition)

Some important questions you need to ask yourself when studying this area.
•What’s the difference between Cost and Budget?
•What’s the difference between Estimate Cost and Determine Budget?
•What’s the difference between Cost Management Plan and Project Management Plan?
•What’s the difference between Parametric Estimating and Analogous Estimating?
•What’s the cost baseline and what other baselines there are?
•What relation does the Activity Cost Estimates in Cost Management with the Estimate Activity Duration in Schedule Management?

These processes interact with each other and with processes in other Knowledge Areas. On some projects, especially those of smaller scope, cost estimating and cost budgeting are tightly linked and can be viewed as a single process that can be performed by a single person over a relatively short period of time. The ability to influence cost is greatest at the early stages of the project, making early scope definition critical. Project Cost Management should consider the stakeholder requirements for managing costs. Different stakeholders will measure project costs in different ways and at different times. For example, the cost of an acquired item may be measured when the acquisition decision is made or committed, the order is placed, the item is delivered, or the actual cost is incurred or recorded for project accounting purposes. Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities. Project Cost Management should also consider the effect of project decisions on the subsequent recurring cost of using, maintaining, and supporting the product, service, or result of the project. For example, limiting the number of design reviews can reduce the cost of the project but could increase the resulting product's operating costs. In many organizations, predicting and analyzing the prospective financial performance of the project's product is performed outside of the project. In others, such as a capital facilities project, Project Cost Management can include this work. When such predictions and analyses are included, Project Cost Management may address additional processes and numerous general financial management techniques such as return on investment, discounted cash flow, and investment payback analysis. The cost management planning effort occurs early in project planning and sets the framework for each of the cost management processes so that performance of the processes will be efficient and coordinated.
(from PMBOK® Guide, Fifth Edition)

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