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PROJECTCOSTMANAGEMENT

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WHATISCOSTANDPROJECTCOST

MANAGEMENT?

Cost is a resource sacrificed or fore-gone to achieve aspecific objective or something given up in exchange

Costs are usually measured in monetary units like dollars

Project cost management includes the processes required

to ensure that the project is completed within an approvedbudget

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PROJECTCOSTMANAGEMENTPROCESSES

Resou rce planning: determining what resources

and quantities of them should be used Cost est imating : developing an estimate ofthe

costs and resources needed to complete a

project

Cost budget ing: allocating the overall cost

estimate to individual work items to establish a

baseline for measuring performance

Cost cont ro l: controlling changes to the projectbudget

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BASICPRINCIPLESOFCOSTMANAGEMENT

Prof i tsare revenuesminusexpenses

Life cyc le cos t ingis estimating the cost of a project over itsentire life

Cash f low analysisis determining the estimated annual

costs and benefits for a project

Benefi tsand costscan be tangib leor in tangib le, directorind irect

Sunk costshould not be a criteria in project selection

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RESOURCEPLANNING

The nature of the project and the organization will

affect resource planning

Some questions to consider:

How difficult will it be to do specific tasks on the project?

Is there anything unique in this projects scope statement that

will affect resources?

What is the organizations history in doing similar tasks?

Does the organization have or can they acquire the people,

equipment, and materials that are capable and available for

performing the work?

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COSTESTIMATING

An important output of project cost management is

a cost estimate

There are several types of cost estimates and tools

and techniques to help create them

It is also important to develop a cost management

plan that describes how cost variances will be

managed on the project

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TYPESOFCOSTESTIMATES

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Type of Estimate When Done Why Done How Accurate

Rough Order of

Magnitude (ROM)

Very early in theproject life cycle,

often 35 years

before project

completion

Provides roughballpark of cost for

selection decisions

25%, +75%

Budgetary Early, 12 years out Puts dollars in the

budget plans

10%, +25%

Definitive Later in the project,