Part 47: Project Cost Management Processes

Project Cost Management includes

  • Plan Cost Management
    • KEY BENEFIT: Develops a plan for managing project costs
    • In this process, we
      • Develop policies, procedures, and documentation for planning, managing, expending, and controlling project costs

  • Estimate Costs
    • KEY BENEFIT: Determines the cost to complete the project
    • In this process, we
      • Come up with a Cost Estimate
    • Cost estimates
      • Are predictions based on information we have at a specific time
      • Includes consideration of alternatives, trade-offs, and risks
      • Include ideas such as make-vs-buy, and buy-vs-lease
      • Are usually expressed in currency, but could be expressed in labor hours or days
      • Are refined during the project to reflect additional information (PROGRESSIVE ELABORATION)
    • The accuracy of an estimate increases as the project progresses
    • Costs are estimated for all resources used by the project
      • Includes direct costs such as materials, equipment, and labor
      • Includes indirect costs such as inflation, insurance, and financing
      • Includes “in kind” contributions by the organization.  For example, the organization may provide office space, telephones, internet, and accountants to the project.  The organization is already paying for these services but can charge their costs to the project.

  • Determine Budget
    • KEY BENEFIT: Determine the cost baseline, which will be used to measure project performance
    • In this process, we
      • Add up the estimated costs of individual activities and work packages to establish the authorized Cost Baseline
    • The project budget includes all the funds authorized to execute the project
    • COST BASELINE
      • Cost Baseline is the approved, time-phased project budget
      • The Cost Baseline does NOT include Management Reserves (discussed later)
      • Like the other baselines, we need to follow the Change Control process to change the Cost Baseline
    • The budget is the total cost.  The budget is based on the estimate and the schedule.
    • Sometimes, we exceed the Cost Baseline and must use the Management Reserves to continue funding the project.  Therefore, the budget is the Cost Baseline plus the Management Reserves. 

  • Control Costs
    • KEY BENEFIT: By monitoring the project, we can identify when it deviates from the Budget, and take corrective action.  This reduces the risks, because we can correct the project before it’s too late.
    • In this process, we
      • Monitor the status of the project to update the project costs and manage changes to the Cost Baseline
    • To update the budget, we must know the amount of money we already spent, and we must use the Change Control Process
    • To be effective, we must compare how much we spend with the amount of work being produced.  This tells us exactly how much our work costs us.
    • Controlling costs means
      • Influencing factors that create changes
      • Acting on changes quickly
      • Ensuring that cost expenditures do not exceed the authorized funding.  Our budget might be broken down per period, per WBS component, per activity, and/or in total for the project, and we should not exceed funding for any aspect.
      • Monitoring work performance against funds expended
      • Informing stakeholders about the costs
      • Preventing unapproved changes from being included in the cost