Project Cost Management: Project Cost Management involves the planning, estimating, determination and control of the monetary cost of a project.
A PM should always aspire to deliver at budget. By utilizing the methodology, and
formulas in this knowledge area, a PM will have a better chance to estimate costs more accurately, manage the budget, and pro actively identify cost overruns before they occur.
This knowledge area is
placed in high importance for the PMP exam.
There are 4 processes in Project cost management
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Key Concepts:
Life-Cycle Costing: Looks at the total cost of ownership from purchase or creation, through operations, and finally to disposal. This practice encourages making decisions based on the bigger picture of ownership costs.
Value Engineering: Is the practice of attempting to get more out of every project in every possible way. It tries to increase bottom line, decrease cost, improve quality, shorten the schedule, and squeeze more benefit and value out of each aspect of the project.
Plan Cost Management: This is the process that creates the plan guiding and directing the activities in the other three cost management processes.
It establishes the
process & policies to plan, manage, expend, and control project costs. The output of this process is a Cost Management plan.
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Outputs:
Cost Management Plan: The cost management plan is a component of the project management plan and describes how the project costs will be planned, structured, and controlled. It may
establish the following:
• Units of measure ( e.g staff hours, staff days)
• Level of precision
• Level of accuracy
• Rules of performance measurement
• Reporting format
Estimate Costs: This process estimates the cost of each scheduled activity, to generate activity cost estimates.
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Determine Budget:This is the process of
aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
A budget can also be referred to as a cost performance baseline. A budget helps an organization plan expenditures throughout the life of a project.
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Control Costs: This is a monitoring & controlling process which utilizes Earned Value management to track expenses vis à vis work done on a project vs work outstanding, to ascertain if the project is performing according to the budget’s plan, in order to take precautionary action if otherwise.
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