Its aim is described in pmp courses as to define the necessary budget to execute the project and its aim is to monitor and control the project costs to match the approved budget. Estimating costs developing an approximationestimate of the costs of the resources needed to complete a project determining the budget allocating the overall cost estimate to individual work items to establish a baseline for measuring performance controlling costs controlling changes to the project budget. Project cost management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs. Managing cost is essential to completing a venture and should be considered an important subset of project management. The first step to understanding cost in project management is to define the types of expenses that a project will likely incur. Cost management overview project management professional. This section of the project management plan specifies the project management processes for the project. Cost management seven project management functions pt 2. Pmp study guide pmbok 6th edition pmp blog project cost management involves planning, budgeting, and managing costs. Surprise expenses are the enemy of any organization, so being able to accurately forecast the costs of a project ahead of time is a key skill to possess. You can check out the complete range of project management pdf ebooks free from this website. Pmp certification study notes 7 project cost management. Cost management is the process by which costs expenses incurred on a project are formally identified, approved and paid. Team clarizen on monday, february 26, 2018 in simple words, a cost management plan is the outline of the project s estimation, allocation and control of costs for the required resources to complete all project activities.
The triple constraint in project management refers to three metrics that define a project. In the case of a project, it helps the project manager estimate what the project will cost and set in place controls by which they can reduce the chance of the project going over budget. The work breakdown structure wbs is the basis for the cost management plan because the costs are totaled or rolled up from the costs for the individual work packages in the wbs. The funding for these projects is constrained by the projected revenue from the varying funding sources e. All of these elements are interdependent and take time and effort to build. Direct costs are costs that can be directly related to producing the deliverable of the. This project cost management process helps you to monitor and report all expenses within a project.
Equally, there are many more articles and books about project cost and its importance. Chart b project scope to define in general the product to be manufactured, purchased or constructed. Processes that help to estimate, budget, and control cost so as to ensure that the project is completed within the approved budget. The focus in this article is on the fundamentals of project execution. Qi anbang 2000 published a book total cost management of project, this book gives a brief introduction on the life cycle cost management theory and methods, this is the earliest. Cost management should occur early in project planning in order to establish a. Though the cost management plan is a required part of the project management plan, unlike time and scope management, it is not listed as a part of the formally defined cost management process. Costs or expenses are recorded by team members, using expense forms. There are several activities in a project, several project resources work on project activities and several materials, tool and equipment are used to complete the project scope.
Cost management should occur early in project planning in order to establish a framework for all cost management processes and ensure that the project does not go over budget. Project cost management is the fourth of 10 project management knowledge areas within the pmbok. The develop project management plan in integration management involves the creation of the cost management plan. Hence cost management and control is very important consideration for ensuring cost. Thankfully, the project management body of knowledge pmbok gives us a strong foundation in this area.
Using software to assist in cost management spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control many companies use more sophisticated and centralized financial applications software for cost information project management software has many cost related features 31. This section will also cover specific project management. Project cost management for project managers based on pmbok. The definitive guide to project cost management with templates for cost estimating and a cost management plan. Cost management plan a cost management plan is a document that describes how the organization will manage cost variances on the project based on estimation, but acted on through monitoring and controlling labor costs are a large percentage of total project cost time money. Cost management is one of the 10 project management knowledge areas and it involves necessary processes to finish the project within the approved budget. Examples of direct costs include fixed labor, materials, and equipment. Project cost management is a weak area 01 inlormation technology projects. In this pmp study guide, well cover all the processes in the cost management knowledge area in pmbok 6th edition. Project cost management is the process of bringing as much predictability and control as possible to the expenses of a project.
Cost management is a really important one among all the project management knowledge areas. Large construction projects are inherently complex and dynamic. Project cost management for project managers based on. Definitions profit revenue costs profit margin profit revenue cash flow refers to the movement of cash into or out of the project. They are typically oneoff costs that come from a single department or the project itself. This project cost management template is free for you to copy and use on your project.
Create a project cost and budget development system. Cost control for the project manager long international. Train project managers in systematic project management 5. Achieving project completion within the estimated cost is fundamental criteria for success of any project. The chart helps visualize how the project is performing. On lump sum projects, trends that do not become change orders are an additional cost to the contractor and decrease his profit on the project. Cost management process project management templates.
The project cost management processes pm certification. Pdf cost management of large construction projects in. Cost baseline refers to what is expected to be spent on the project. Is the current approved budget sufficient to complete the project. Cheryl johnson effective cost management is essential to effective. This is because, apart from other project components such as time, scope and quality, project cost management is always considered as one the key components of project management. It includes activities and tools to help you complete your project within the approved budget. Cost control is the part of project management such that cost management processes involved in planning, estimating, budgeting, and controlling costs so that the budget can be completed within the approved budget. Cost management is the process of estimating, allocating, and controlling the costs in a project.
The books in the project management essential library series provide project managers with new skills and innovative approaches to the fundamentals of. Project managers are continually asked by company management and the customer to verify that the project s cost can be met within the authorized budget. It includes a description of how costs will be estimated and budgeted, and helps define the methods. Cost management is the process of accumulating, organizing and analyzing the data that is required to make cost related decisions for the purpose of obtaining maximum financial effectiveness. Cost management does not happen in isolation the project manager needs input from the project team and key stakeholders. The tcm framework is a structured, annotated process map that for the first time explains each practice area of the cost engineering field in the context of its relationship to the other practice areas including allied professions. Because you need to purchase tools, materials, and the company must pay salaries of. The cost management plan is a component of the project or program management plan that describes how costs will be planned, structured and controlled. The after project costs are called life cycle costs. Project cost management for project managers based on pmbok by dr. That is the expenditure is less in the beginning, and the end.
There are many articles and books have been written about project management. Therefore, in cost management, the triple constraint is at play. Many projects start with good ideas, huge investments and great efforts. Questions on project cost knowledge area are available in cost questions. Managing the project budget free ebook in pdf format. Cost management is the process by which one plans and manages the budget of a business or project.
A major contribution to unsuccessful projects is the lack of. To manage your project costs effectively, there are three key processes you need to be able to perform. A cost management plan must take into account the variables that impact the budget, whether materials or people. Hence, good project management requires a firm grasp on the concepts and techniques in project budgeting and cost control.
The purpose of cost management is to ensure project costs are planned based on project need, tracked, changed according to procedure and reported on a regular basis. Project cost management includes the processes involved in planning, estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. Project managers must make sure their projects are well defined, have accurate time and cost estimates and have a realistic budget that they were involved in approving. Project cost management is one of the most important aspects of project management that you need to master. It allows a business to predict coming expenses in order to reduce the chances of it going over budget. This article outlines the processes involved in managing project cost, processes that include estimating and forecasting project cost, budgeting project cost, controlling project costs, and using. Quantify risk factors and incorporate them as cost 4. The expenditure is maximum during the middle of the project. By using the project cost management module, project managers will be able to answer the following questions. Approach to project management fundamentals by fraser macduffee february 28, 2020.