06. Cost Management

Process Outputs
Plan Cost Management
Cost Management Plan
Estimate Costs
Cost Estimates
Determine Budget
Cost Baseline
Project Funding Requirements
Control Costs
Work Perf. Information
Cost Forecasts

Many of the principles in this area come from well-established practices in the field of cost accounting, managerial accounting, and finance.

A project manager should tie costs to activities and resources and build estimates from the bottom up. In reality, the total budget is usually determined prior to knowing activity costs, as budgets are made in advance for the company.

While budgets are a fact of life, a project manager should review the scope of work and the duration estimates and then reconcile them to the scope and projected costs. Adjustments to the project scope, budget, or schedule are much easier to justify by working from a detailed level instead of from a top down.

Budget is usually tackled first from a company view, but the best approach is 1) Scope 2) Schedule 3) Budget.

In a nutshell, the budget is constructed by applying rates and dates against resources and activities, which build activity cost estimates and a cost baseline, as outlined in the cost management plan.

Life-Cycling Costing – The total cost of ownership from purchase, or creation, through operations, and finally to disposal. It encourages making decisions based on the bigger picture of ownership costs.

Value Engineering – Practice of trying to get more out of the project in every possible way – working to increase the bottom line, decrease costs, improve quality, shorten the schedule, and generally squeeze more benefit and value out of each aspect of the project. The key, is to ensure the scope of work is not reduced by these efforts.