What is Project Cost Management
This is one of the key factors that need to be focused thoroughly while managing a project. Being an important node of the iron triangle, cost management has become a critical knowledge area that every project management team needs to be cautious with. Project Cost Management is about managing the the cost of the project so that it can be managed and completed within the given budget. Within this cost management context, activities such as planning, estimating, funding, controlling, etc… are included. (PMBOK 5th edition)
When it comes to project cost management, it’s primal concern is about managing the cost of the resources required to complete the project. The ability to influence the cost of a project is highest at the early stage of the project since the initial scope of the projects are always critical.
Project Cost Management has been defined under 4 major processes. They are;
Plan Cost Management
Through this process, it produces the cost management plan which establishes the policies and procedures to handle, expend, manage and control the cost of a given project. Throughout the project life cycle, the cost management plan directs the project management team on how to control and manage the dedicated budget of the project. In addition, this acts as a subsidiary plan of the project management plan.
Estimate Cost process includes the activities to develop an approximation of monetary resources required to complete the project. It gives an idea about how much it will cost to complete the defined project activities. Most of the time, this process is a prediction based on the known information at a certain time. When estimating the cost, risks that will have an impact towards the total budget will need to be considered as well. The accuracy of the project cost becomes higher with the progression of the project via the project life cycle. At the early stages, the cost estimation will range with a rough order of magnitude (ROM) between -25% – +75%, but with the project progresses, this range will come to a range of -5% – +10% accuracy. This range will include all the cost including labor, materials, equipment, services, facilities and other costs such as allowances, contingencies and overhead costs.
By determining the budget, the cost baseline is prepared. This is achieved by consolidating the estimated cost at each individual activities or work packages. The determined budget can be used to measure the performance of the project and can be monitored and controlled against the determined cost baseline. This is considered the approved version of the time-phased project budget excluding the management reserves.
Control cost is about monitoring and tracking the status of the project to update the cost of the project and managing the changes to the cost baseline. By a careful cost control tracking mechanism, the project management team can review any variances or deviations to the original plan and take corrective actions to bring the project back to the original planned line.
Below table shows under which Project Management Process Group the above processes are performed.
|No Process Performed||1. Plan Cost Management
2. Estimate Cost
3. Determine Budget
|No Process Performed||Control Cost||No Process Performed|
**Please note that each and every individual process mentioned above will be explained further separately.