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Project Cost Management
Project Cost Management processes are used to manage and control costs on projects. Cost management is closely coupled with a company’s financial accounting system and these project management processes are often tailored to be compatible with the company financial system.
When to use
Cost management processes are used throughout most of the project lifecycle. As soon as project planning starts, some of the processes are used and they continue through the final project cost performance report.
Project Cost Management
“Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.” PMBOK® Guide
The project cost management processes are focused on the cost of the project resources used to accomplish the work of the project. They are not focused on the long term business impact to the organization because of the results of the project. In some organizations, the financial accounting system requires that all cost management activities be conducted by a selected department or group. In those cases, the project costs management activities may be done by individuals who are not part of the project team. On small projects, the Estimate Costs and Determine Budget activities are often so intertwined that it is virtually impossible to separate them into separate processes.
Project Integration Management Processes
There are four Project Cost Management Processes. They relate to each other as shown in the diagram below. The four processes are:
- 7.1 Plan Cost Management: “The process of defining how the project costs will be estimated, budgeted, managed, monitored and controlled. ” PMBOK® Guide
- 7.2 Estimate Costs: “The process of developing an approximation of the monetary resources needed to complete project work. ” PMBOK® Guide
- 7.3 Determine Budget: “The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.” PMBOK® Guide
- 7.4 Control Costs: “The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.” PMBOK® Guide
Project Cost Estimating
One of the most difficult tasks for many project managers and core team members is creating cost estimates. People take money very seriously. They do not want to underestimate an activity, miss their target and be foreced to go “begging” for more money. But they also do not want to over-estimate an activity and be forced to “give money back.” Add to this that the uncertainty in projects often means that it is impossible to accurately predict what will happen on a project. It is no wonder project team members are often uncomfortable providing cost estimates.
The table below lists the various techniques that can be used to create a cost estimate along with a brief description of the technique and the type of activities for which that technique is appropriate.
Definitions are taken from the Glossary of the Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Sixth Edition, Project Management Institute, Inc., 2017, Pages 702, 704, 706, 713, and 715. PMBOK is a registered mark of the Project Management Institute, Inc.
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PMI, PMP and PMBOK are registered marks of the Project Management Institute, Inc.