Project Cost management basically deals with managing the cost of the Project. This involves activities like estimating the cost of each of the project activities, adding up the cost estimates of the related activities to arrive at the cost budget, controlling the cost to ensure that project activities gets done within the defined budget.
The first thing to be done as part of the Project Cost Management is to come up with the cost management plan that has information like how the project would go about planning the project cost and how would this cost be managed and controlled.
Project Cost Management Plan is a part of the Project Management Plan.
There are 3 processes which come under Project Cost Management. They are:
1. Estimate Cost
Estimate cost is the first process of the Project Cost Management. It is basically estimating the monetary resources required to complete a Project activity. Here the important point to note is that cost of a specific activity is estimated based on the information available at that point of time. So, as the project team gets more information about the Project, it is quite natural to expect that activity cost estimation may change.
The output of this process is quiet straightforward. Estimates of each of the activities are arrived at along with the basis of the estimate. Basis of the estimate includes things like how was the estimate developed, what were the assumptions made in estimating etc.
2. Determine Budget
Once the Estimate of the each of the activities is arrived at, the next Project Cost Management Process is to Determine Budget.
It is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. This is where the Control Account concept comes into play.
The estimated costs of the activities are aggregated to arrive at the Cost Budget at the Control Account level.
This cost budget once approved becomes the Cost baseline of the Project. Project Cost performance is measured against this cost baseline i.e., how much more the project is costing compared to the original cost baseline.
The inputs used in determining the Project Budget are the Activity Cost Estimates and the basis of the estimates, which are the output of the previous cost management process.
In addition to these two important inputs, Project Schedule and resource calendar are looked at.
The output of this process is the cost performance baseline. This is basically authorized Project budget over a period of time. This is used to measure, monitor and control overall cost performance of the project.
In adding to this, the funding requirements are also arrived at. Funding requirements means, how much fund the project requires monthly, quarterly or yearly for the execution.
3. Control Cost
Control Cost is the last process of the Project cost management and its part of the monitoring and control process group.
Control cost is the process of monitoring the status of the Project to update the Project budget and managing changes to the cost baseline. Updating the budget involves recording actual costs spent to date.
The most important Tools & Technique used in Controlling Cost is the Earned Value Analysis.
Now, let us look at the output of this process. The key output of this process are Work performance measurement in terms of Cost Variance (CV), Schedule Variance (SV) and Earned Value (EV).
The first thing to be done as part of the Project Cost Management is to come up with the cost management plan that has information like how the project would go about planning the project cost and how would this cost be managed and controlled.
Project Cost Management Plan is a part of the Project Management Plan.
There are 3 processes which come under Project Cost Management. They are:
1. Estimate Cost
Estimate cost is the first process of the Project Cost Management. It is basically estimating the monetary resources required to complete a Project activity. Here the important point to note is that cost of a specific activity is estimated based on the information available at that point of time. So, as the project team gets more information about the Project, it is quite natural to expect that activity cost estimation may change.
The output of this process is quiet straightforward. Estimates of each of the activities are arrived at along with the basis of the estimate. Basis of the estimate includes things like how was the estimate developed, what were the assumptions made in estimating etc.
2. Determine Budget
Once the Estimate of the each of the activities is arrived at, the next Project Cost Management Process is to Determine Budget.
It is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. This is where the Control Account concept comes into play.
The estimated costs of the activities are aggregated to arrive at the Cost Budget at the Control Account level.
This cost budget once approved becomes the Cost baseline of the Project. Project Cost performance is measured against this cost baseline i.e., how much more the project is costing compared to the original cost baseline.
The inputs used in determining the Project Budget are the Activity Cost Estimates and the basis of the estimates, which are the output of the previous cost management process.
In addition to these two important inputs, Project Schedule and resource calendar are looked at.
The output of this process is the cost performance baseline. This is basically authorized Project budget over a period of time. This is used to measure, monitor and control overall cost performance of the project.
In adding to this, the funding requirements are also arrived at. Funding requirements means, how much fund the project requires monthly, quarterly or yearly for the execution.
3. Control Cost
Control Cost is the last process of the Project cost management and its part of the monitoring and control process group.
Control cost is the process of monitoring the status of the Project to update the Project budget and managing changes to the cost baseline. Updating the budget involves recording actual costs spent to date.
The most important Tools & Technique used in Controlling Cost is the Earned Value Analysis.
Now, let us look at the output of this process. The key output of this process are Work performance measurement in terms of Cost Variance (CV), Schedule Variance (SV) and Earned Value (EV).
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