Cost is a resource sacrificed or foregone to achieve a specific 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 approved budget.
Project cost management processes are,
1. Plan Cost Management
The process that establishes the policies, procedures, and documentation for planning, managing, expending and controlling project costs.
2. Estimate Costs
The process of developing an approximation of the monetary resources needed to complete project activities. 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.
Basic tools and techniques for cost estimates:
01. Analogous or top-down: Use the actual cost of a previous, similar project as the basis for the new estimate. 02. Bottom-up: Estimate individual work items and sum them to get a total estimate. 03. Parametric: Use project characteristics in a mathematical model to estimate costs.
3. Determine budget
The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. Cost budgeting involves allocating the project cost estimate to individual work items and providing a cost baseline. Inputs for the cost budget would be 01. Cost Estimate 02. Work Breakdown Structure 03. Project Schedule The output will be a cost baseline – A time-phased budget that will be used to measure and monitor cost performance of the project.
4. Control costs
The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline. Project cost control includes, 01. Monitoring cost performance. 02. Ensuring that only appropriate project changes are included in a revised cost baseline. 03. Informing project stakeholders of authorized changes to the project that will affect costs.
Earned value management is an important tool for cost control. Progress Reporting and Forecasting are the performance measurement analysis.