2. Agenda
• What Is Project Cost Management?
• Why is cost management important in project management
• The business advantages of effective cost management
• What are the challenges of cost management?
• Project Cost Management Processes
• Project Resource Planning
• Cost Estimation
• Cost budgeting
• Cost control
3. What is project cost management?
Cost management in project management is the process of planning,
estimating, budgeting, and controlling project costs.
Cost management processes are in place to help project teams plan and
control budgets during the project life cycle.
For a project to be called successful, it’s necessary that
• It delivers on the requirements and scope
• Its execution quality is of a high standard
• It’s completed within schedule and
• It’s completed within budget.
4. Why is cost management important in project management
Global services company Accenture believes sustainable cost
management should be “part of the company’s DNA.”
Without a detailed budget, you cannot
• Set clear expectations with stakeholders
• Effectively map out the resources
• Track progress and respond with corrective action at a quick pace
• Maintain expected margin, increase ROI, and avoid losing money on
the project
• Generate data to benchmark for future projects and track long-term
cost trends
5. Project managers should not underestimate the business advantages of
effective cost management. Here are three of the key benefits:
• Prevents overruns
• Avoids risk
• Aids future planning
The business advantages of effective cost management
6. Cost project management can be tricky. Here are three challenges that
frequently crop up:
• Lack of resources: If a project budget is too small, it can be difficult to
secure the required labor, materials, etc., to complete the project
successfully.
• Inaccurate estimation: Poor forecasting can occur when a manager is
inexperienced or doesn’t fully understand the scope of the project. This
can lead to cost overruns and affect overall profitability.
• Outdated technology: Project managers need access to intuitive, up-to-
date technology and tools to manage costs accurately.
What are the challenges of cost management?
7. Project Cost Management Processes
Cost Management has 4 processes, three of these processes belong to planning
process group, and on of them belongs to monitoring and controlling process group.
These processes are:
8. While resource management is in place to plan, allocate, and schedule the resources
needed for each stage of a project, resource planning looks specifically at the costs
associated with each of these resources
• Task-level approach : PM first need to have(WBS) ready and What is the needed
recourses
• Consider historical data: Past schedules and effort
• Take feedback from team members
• Assess the impact of time
1. Project Resource Planning
10. The process of quantifying the costs associated with all the resources required to
execute the project.
To perform cost calculations, we need the following information:
• Resource requirements (output from the previous step).
• Price of each resource (e.g., staffing cost per hour, vendor hiring costs, server
procurement costs, material rates per unit, etc.)
• Duration that each resource is required
• List of assumptions
• Potential risks
• Past project costs and industry benchmarks, if any Insight into the company’s
financial health and reporting structures
2-Cost Estimation
11.
12. To get a good estimate at the costs, you can use one of the following techniques:
Analogous estimating:
estimates are based on past projects. It uses actual costs from a similar finished project to
estimate the costs of the new project. The accuracy of these estimates will depend on the
similarities between the new project and the old project.
Parametric modeling:
estimates are based on mathematical formulas, typically following a Regression Analysis
or Learning Curve model. The accuracy of these estimates depends on the assumptions
made.
Bottom-up estimating:
estimates are based on individual work item cost and duration estimates. This involves
estimating the smallest activities and then adding them up to create an estimate for the
whole project.
2-Cost Estimation techniques
14. To determine the cost budget, consider the following techniques:
Cost Aggregation: requires you to aggregate or combine costs from an activity level to
a work package level. The final sum of the cost estimates is applied to the cost
baseline.
Reserve Analysis: requires you to create a buffer or reserve to protect against cost
overruns. The degree of protection should be equivalent to the risk foreseen in the
project. The buffer is part of the project budget, but not included in the project baseline.
Historical Data: requires you to think about estimates from closed projects to
determine the budget of the new project. This is very similar to analogous estimation
described earlier.
Funding Limit Reconciliation: requires you to adhere to the constraints imposed by
the funding limit. The funding limit is based on the limited amount of cash dedicated to
your project. To avoid large variations in the expenditure of project funds, you may
need to revise the project schedule or the use of project resources.
Cost budgeting
15. Cost budgeting can be viewed as part of estimation or as its own separate process.
Budgeting is the process of allocating costs to a certain chunk of the project, such as
individual tasks or modules, for a specific time period. Budgets include contingency reserves
allocated to manage unexpected costs.
Cost budgeting
16. Good project managers will carefully monitor the cost of their projects to prevent scope
creep.
To effectively control project costs, consider these tools and techniques:
• Earned value management
• Forecasting
• To-complete performance index (TCPI)
• Variance analysis
• Performance reviews
4. Cost control
