3rd Lecture – Project Cost Management

Topics Today:
1. Plan Cost Process. (Inputs, Tools &
Techniques, Output) 1
 What is Cost Management?

•Process of planning and controlling the budget of the project.

•Cost management predicts the expenditure and reduce the project

from going over budget.

•Project Cost Management is Process to ensure that project is

completed within the approved budget.

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 Cost / Cost Management……….?
Cost:

•Cost means the amount of expenditure actual or estimated

incurred on or attributable to a given thing.
•Project teams should estimate costs for all resources that will be
charged to the project. This includes Labor, Materials, Equipment,
Services, Software, Hardware, Facilities, Contingency Costs.
•Project Direct Costs: Directly related (traceable).
•Project Indirect Costs: Not readily identifiable with a specific
project. They are usually grouped into common pools and charged
to benefiting projects through an allocation process. They aren’t
usually within the control of the project manager.

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 Project Cost Management
Project Cost Management includes the process involved in
planning, estimating, budgeting, financing, funding, managing,
controlling costs so that the project can be completed within the
approved budget. The Project Cost Management processes are:
7.1 Plan Cost Management–The process of defining how the cost
will be estimated, budgeted, managed, monitored, and controlled.
7.2 Estimate Costs–The process of developing an approximation
of the monetary resources needed to complete project work.
7.3 Determine Budget–The process of aggregating the estimated
costs of individual activities or work packages to establish and
authorized cost baseline.
7.4 Control Costs–The process of monitoring the status of the
project to update the project costs and manage changes to the cost
baseline. 4
 7.1 Plan Cost Management
Plan Cost Management is the process of defining how the project
costs will be estimated, budgeted, managed, monitored, and
controlled. The key benefit of this process is that it provides
guidance and direction on how the project costs will be managed
throughout the project. This process is performed once or at
predefined points in the project. The inputs, tools and techniques,
and outputs of this process are depicted in Figure 7-2, Figure 7-3
depicts the data flow diagram of the process.
Inputs Tools & Techniques Outputs
1. Project Charter 1. Expert judgment 1. Cost management plan
2. Project management plan 2. Data Analysis
• Schedule management plan • Alternative analysis
• Risk management plan 3. Meetings
3. Enterprise environmental
factors
4. Organizational process assets
Figure 7-2. Plan Cost Management: Inputs, Tools & Techniques, and
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Outputs
 Plan Cost Management
4.1
Develop Project
Charter

● Project Charter

7.1
Project Plan Cost Project
Management Management Management
● Cost
Plan Management Plan
Plan

Project Management Plan

● Schedule management plan
● Risk management plan

Enterprise /
Organization
● Enterprise environmental factors
● Organizational process assets

Figure 7-3. Plan Cost Management: Data Flow Diagram 6

 7.1.3.1 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. The
cost management processes and their associated tools and techniques are
documented in the cost management plan.

PMBOK: Cost management Plan can establish followings:

1. Units of measure, hours, days, weeks.

2. Level of Precision (to round activity estimates).
3. Level of Accuracy. Acceptable Range (+-%)
4. Organizational procedure links. WBS components called CA.
5. Control Thresholds. Amount of variance the sponsor is willing to allow.
6. Rules of performance measurement. EVM
7. Reporting formats. Formats and frequency.
8. Additional details.
• Description of strategic funding choices,
• Procedures to account for fluctuations in currency exchange rates, and
• Procedures for project cost recording.
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Thank You