PROJECT COST

MANAGEMENT
Plan Cost Management
Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding,
managing, and controlling costs so that the project can be completed within the approved budget.

Definition of key terms

◦ Plan Cost Management:

The process that establishes the policies, procedures, and documentation for planning, managing, expending,
and controlling project costs.

◦ Estimate Costs:
The process of developing an approximation of the monetary resources needed to complete project activities
◦ Determine Budget:
The process of aggregating the estimated costs of individual activities or work packages to establish an
authorized cost baseline.

◦ Control Costs:
The process of monitoring the status of the project to update the project costs and managing changes to the
cost baseline.
Plan Cost Management ( PMBOK)
Estimating Costs
• Estimation techniques are useful in attempting to predict what will happen in future during the life of a
project. More accurate estimates require more effort and are more costly to prepare

• Cost estimating involves approximating or estimating the costs of resources required to complete a project.

• Cost budgeting involves the allocation of the overall cost estimate to individual tasks over time to establish
a baseline for measuring performance.
Cost Estimation Tools and Techniques
subdivides project cost estimates as follows:

◦ Direct and indirect costs

◦ Fixed and variable costs

◦ Time-related costs

◦ Labour, material and equipment costs

◦ Transport costs

◦ Preliminary and general (P&G) costs

o Labour costs

o Material costs

o Equipment costs

o Facilities costs

o Subcontractors and consultants' costs

o Travel costs

o Contingency costs
Various estimating techniques may be used to predict the project’s parameters and resource requirements quickly and
accurately.

These include:

Jobbing

Factoring

Inflation

Economies of scale

Unit rates
Analogous or top-down:
use the actual cost of a previous, similar project as the basis for the new estimate

Bottom-up:
estimate individual work items and sum them to get a total estimate

Parametric:
use project characteristics in a mathematical model to estimate costs

Direct Costs
are costs that can be directly related to producing the deliverable of the project: Salaries, cost of hardware &
software purchased specifically for the project
◦ Indirect costs
also called overheads, are those costs which cannot be directly booked to an activity or project but are
required to keep the company operational.

◦ Indirect management costs

refer to senior managers, the estimating department, sales and marketing, general office staff, secretarial,
administration and the personnel department.

◦ Indirect labour
costs refer to the reception, maintenance, security and cleaners.
◦ Indirect materials
include stationery, cleaning materials and maintenance parts.

◦ Indirect equipment
includes computers, photocopiers and fax machines.

◦ Indirect expenses
include training, insurance, depreciation, rent and rates.

◦ Variable Costs:
change with the amount of production (cost of material).

◦ Fixed Costs:
do not change with production (rent, setup costs, etc.)
Project Budget Format
• A Budget is defined as the approved estimate for the project or any work breakdown structure component
or any schedule activity.

• This is the third process in this knowledge area which comes under planning process group for
aggregating the cost estimates of individual activities of work package to establish an authorized cost
baseline.

• proposes the use of WBS to estimate costs.

• This is shown below

Project Budget Format
Control Costs
This is the fourth process of this knowledge area which comes under monitoring and control process group
for monitoring the status of the project costs and managing the changes to the cost baseline.

asserts that this includes:

◦ Influencing the factors that create changes to the authorized baseline

◦ Monitoring cost performance to detect variances from the plan

◦ Ensuring that all appropriate changes are recorded

◦ Preventing incorrect, inappropriate, or unauthorized changes

◦ Informing the appropriate stakeholders of authorized changes

◦ Analyzing positive and negative variances and how it affects the other control processes
Costs Control Sheet