Project Cost Management
Project Cost Management includes the processes that estimate, budget and control costs so that the project can be completed within the approved budget. A planning effort by the project management precedes the work involved in performing the three processes of Project Cost Management. The planning produces a cost management plan that sets out a format and establishes the criteria for planning, structuring, estimating, budgeting and controlling project costs. Project Cost Management is primarily concerned with the cost of the resources needed to complete project activities. It should also consider the effect of project decisions on the subsequent recurring cost of using, maintaining and supporting product, service or result of the project. It may also address general management techniques like return on investment, discount cash flow, and investment payback analysis.
The three process of this knowledge area are:
The three process of this knowledge area are:
- Estimate Costs: This process is used to approximate the monetary resources needed to complete project activities. In order to achieve optimal costs for the project, it is important to consider cost trade-offs and risks. The accuracy of the project estimate increases as the project progresses. Costs are estimated for all resources that will be charged to the project. It is a quantitative assessment of the likely costs of resources required to complete the activity.
- Determine Budget: Process of aggregating the estimated costs of individual activities or work packages to establish a cost baseline. The baselines includes all authorized budgets but excludes management reserves. The project cost performance is measured against the authorized budget.
- Control Costs: The process of monitoring the status of the project to update the budget. It also includes managing any changes to the cost baseline. Much of the effort of cost control goes in analyzing the relationship between consumption of project funds to the physical work being accomplished for such expenditures. Managing the approved cost performance baseline and changes to that baseline is key to effective cost management.
Tools and Techniques:
Earned Value Management (EVM): This method is used for performance measurement. It integrates project scope, cost and schedule to help the team measure project performance and progress. EVM develops and monitors Planned Value, Earned Value and Actual Cost for each work package and control account.
To-Complete Performance Index: This index is the calculated projection of cost performance that must be achieved on the remaining work to meet a specified management goal, such as the Estimated At Completion (EAC) or the Budget At Completion (BAC).