Farah Andayani / 29320028 / Operations Management / Entree19 / Aries Firman

What are the main issues in the Project Cost Management after analyzing the PMBOK 6 th Ed?
Project Cost Management is included in the second phase of the project management cycle (planning
process) and the fourth phase (monitoring & controlling). Project Cost Management is naturally the
most critical part within the project management area due to a primary focus of BOD and every
stakeholder will be highlighted in the financial benefit outcomes for the project. This will be a
challenging part since every project managers must improve their ability to deliver the projects within
approved budget, regardless of whatever happen. This implicate to requirement of the ability in
preparing detailed budgets with clear documented assumptions beforehand. Basically, project
managers need to couple an overall understanding of cost management with a detailed understanding
of organizational cost management policies and procedures.

The most important thing for a project manager to remember is the Project Cost Management need
to be predicted as well as measured in each of the phase to ensure correlation between the phases.
In the Cost planning, you predicting the cost can be through value analysis. In the Estimating phase,
cost predicting can be done through Vendor Bid Analysis and activity cost estimate. In the determining
phase, it is common to use reserve analysis such as contingency reserve and management reserve for
cost measurement. In the last phase, which is Cost control, measurement can be done through
variance analysis.

Show the conceptual framework by a graphical illustration & also explain it briefly!

Plan Cost Determine

Estimate Cost Cost Control
Management Budget

Life Cycle Variable Cost Planned

Costing Cost Baseline Value

Funding Cost Earned

Fixed Cost
source Aggregation Value

Direct Cost Actual Cost

Indirect Cost

The lack of understanding each elements of the phases in Project Cost Management will result to
misinterpreting in cost management which implied to failure in overall project management practices.
Therefore cost management should occur early in project planning in order to establish a framework
for all cost management processes and ensure that the project does not go over budget. Many
financial management techniques, such as ROI, payback, and discounted cash flow, are used during
this process. There are four phases in project cost management, and each of the phase reacquire deep
understanding and monitoring. Below are elements of each phases:
 Farah Andayani / 29320028 / Operations Management / Entree19 / Aries Firman

Cost planning
This Is the process of establishing an approximate monetary value to each project activity.The key
benefit of this process is that it determines the amount of money needed to complete project work
Life Cycle Costing – Looking at the cost of the whole product life cycle, not just the cost on the project
Funding source– Whichever the project is funded from, which can be individual, funding with equity
or funding with debt.

Cost Estimating
The second phase is the process of establishing an approximate monetary value to each project
activity. The key benefit of this process is that it determines the amount of money needed to complete
project work
Variable costs – these costs change with the amount of production or the amount of work
Fixed costs – these costs do not change as production changes
Direct costs – these costs are directly attributable to the work on the project
Indirect costs – indirect costs are overhead items or costs incurred for the benefit of more than one
project

Determining Budget
The third phase is the process of aggregating individual activity or work package costs into the project
budget. The Key Benefit of this process is that it determines the cost baseline against which project
performance is measured.
Cost aggregation – the process of rolling up individual activity costs into work packages and work
packages into control accounts and control accounts into the project budget
Funding limit reconciliation – Comparing plan project expenditures against funding limits to determine
if any variances exist.
Cost baseline – approved time-phased project budget. The cost baseline tells you how much you
should have spent at any given point in time. Any changes to the cost baseline must be approved by
the change control board.

Cost control
The Control Costs process is the process of monitoring actual project costs against the cost baseline
and managing changes to the cost baseline. The key benefit of this process is that it allows the PM to
detect cost variances early and take corrective actions to bring the project back on budget.
Cost Baseline - approved time-phased project budget. The cost baseline tells you how much you
should have spent at any given point in time. Any changes to the cost baseline must be approved by
the change control board.
Cost Aggregation - the process of rolling up individual activity costs into work packages and work
packages into control accounts and control accounts into the project budget

Most of the important issue to address in Project Cost Management is correlate each budgeting phase
towards the Earned Value Metrics (EVM) or Earned Schedule (ES) which captures time or duration
metrics to enhance the evaluation of project schedule performance and to forecast the duration
needed to complete the project. ES and EVM use the same underlying assumptions, leading to
consistent forecasts about project outcomes.
Farah Andayani / 29320028 / Operations Management / Entree19 / Aries Firman