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Project Cost Management:

Simplified Explanation with Case Study Examples

Project Cost Management is a critical aspect of project management that deals with
estimating, allocating, and controlling the costs associated with a project. It ensures that the
project can be completed within the approved budget and is a major concern for project
managers and stakeholders.

1. Plan Cost Management

This initial phase involves creating a plan that describes how project costs will be managed and
controlled. It sets the framework for the activities to follow.

Case Study Example: In a residential construction project, the project manager develops a
cost management plan that outlines the budgeting process, sets a timeline for financial
reporting, and identifies cost constraints and assumptions.

2. Estimate Costs

During this phase, the project team estimates the monetary resources needed to complete
project activities. Estimates can be determined using various tools and techniques such as
parametric estimating, which uses statistical relationships between historical data and other
variables.

Case Study Example: A software development company uses historical data and regression
analysis to estimate the costs for a new client project. This method helps predict the financial
resources needed based on similar past projects.

3. Determine Budget

This process aggregates the estimated costs of individual activities or work packages to
establish an authorized cost baseline. The budget covers all costs, including reserves, and
serves as a benchmark for measuring financial performance.

Case Study Example: For a public infrastructure project, the project manager consolidates all
costs from subcontractors, equipment, materials, and labour to create a total project budget,
which is then approved by the city council.

4. Control Costs

The final process involves monitoring the status of the project to update the project budget and
managing changes to the cost baseline. It includes measuring actual expenditures against the
budget and forecasting future performance.

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 Day # 3 NOTES

Case Study Example: During the construction of a new hotel, the project manager uses earned
value management (EVM) techniques to track budget performance and make adjustments.
This method provides a comprehensive view of project cost performance and helps in taking
corrective actions when necessary.

Effective Project Cost Management ensures that a project can be delivered within the
approved budget. It requires careful planning, accurate estimation, and rigorous control of
costs. By applying structured techniques and tools, project managers can significantly
enhance the likelihood of project success, ensuring that projects are completed on budget,
which in turn enhances the financial stability and reputation of the managing organization.

* End of document

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