project cost management pdf

Project Cost management for Project Managers based on PMBOK By Dr. T D Jainendrakumar The Cost Management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. Send us an email at support@examspm.com, There are many ways to fund a project, including: 1) Self-funding, 2) Funding with equity, or 3) Funding with debt. Project management plan 2. Ensuring timely implementation of change requests, Issuing cost-related change requests when necessary, Monitoring cost performance and understanding the root causes of variances, Monitoring activity costs against project budget, Reporting cost performances to key stakeholders, Ensuring the project do not exceed funding limits, Preventing unapproved changes from using up the budget, Bringing cost overruns to within acceptable limits, – a technique to estimate the potential profitability of an investment, An activity is considered 50% complete when it begins and gets credit for the last 50% only when it is completed, An activity is considered 20% complete when it begins and get credit for the last 80% only when it is completed, An activity does not get credit for partial completion. As of today, how much over or under budget do we expect to be at the end of the project? Remembering this one fact alone should help you get about half the earned value question right, If it is variance, the formula is EV minus something, If it is an index, it is EV divided by something, If the formula relates to schedule, use PV, E.g. Relies of expert judgment. Project Cost Management is defined as the process of planning and controlling the project cost effectively. If third-party vendors are used on the project, the PM needs to make sure their cost estimates are included in the project budget. Have a question? – Finding less costly ways to do the same work. E.g. Budgeting. Lastly, don’t forget to check out the other study notes in this series and download our free 200 practice questions by clicking the links below: Integration Management – PMP Study Guide, Communications Management – PMP Study Guide, Procurement Management – PMP Study Guide, Stakeholder Management – PMP Study Guide. In order to be approved by the applicable … best practice in the cost management of construction projects under traditional contracts and new methodologies. When estimating cost, you need to know whether you are only estimating the direct project costs or whether your estimates need to include indirect costs as well. “PMP”, “PMBOK”, “PMI-ACP” and “PMI” are registered trademarks of the Project Management Institute, Inc. All rights reserved. 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 Planning & Management The Importance of Project Cost Management • IT projects have a poor track record for meeting budget goals • Some studies found the average cost overrun (the additional percentage or dollar amount by which actual costs … The key benefit of this process is that it determines the amount of money needed to complete project work. Project Cost Management involves planning, budgeting, and managing costs. All stages within the life cycle of a project are considered from pre-contract to tendering and post-contract. Funding requirements are derived from the cost baseline. Overview 1.1 Purpose The purpose of cost management is to ensure project costs are planned based on project need, tracked, changed … Some project managers use the range of +/- 10% from actual, while others use -5% to +10% from actual. <> Cost Management Plan ‐ Version 1.0 November 2014 Page 1 1. Develop Schedule 3. It only gets credit for full completion. – detailed estimating is done for each activity (if available) or work package (if activities are not defined), and the estimates are then rolled up into control accounts and finally into an over project estimate, – the part of the budget set aside to deal with negative risks that may occur. As of today, what is the estimated value of the work actually accomplished? Control Costs (Monitoring & Controlling) 2. This Project Cost Management Process helps you to monitor and report all expenses within a project. Supporting details for activity cost estimates: Examples: cost of material, supplies, and wages, – these costs do not change as production changes, Examples are team travel, team wages, recognition, and costs of material used on the project, Examples include taxes, fringe benefits, and janitorial servicesCost of quality – The total cost of all efforts related to quality, This type of estimate is usually made during the initiating process, A typical range from ROM estimate is a +/- 50% from actual, but this range can vary depending on how much is known about the project when creating the estimates, This type of estimate is usually made during the planning phase and is in the range of -10% to +25% from actual, Later during the project, the estimate will become more refined. is a prediction of how much an activity will cost upon completion given the information we know now. Medium Projects – project management costs … The cost management planning effort occurs early in project planning and sets the framework for each of the cost management … From this point on, how much more do we expect it to cost to finish. endobj ",#(7),01444'9=82. endobj Cost baseline + contingency reserves = project budget. Although estimating cost and determining budgets can be one process on small projects, PMI separates them into two processes because the exam assumes the PM is managing a large project. Cost management is the process of planning, monitoring and controlling spending. The summation of control accounts gives you your cost baseline. ; Worked examples, legal cases and over 65 project … Sponsor must approve the use of management reserves and then the project must be “re-baselined”, Used at the discretion of the project manager. Almost all projects need estimates. $.' The first process of this knowledge area is plan cost management … Equipment 4. The cost of the project can be estimated from various process sources (Examples below) 1. To estimate costs, you need to look at the project schedule to see which activities need which resources. As of today, what is the estimate value of the work planned to be done? Project Estimating. 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. Analogous estimating refers to the use of observed cost figures and related … Funding occurs in incremental stages that are not continuous or evenly distributed. it costs $100 to install 20m of wires, thus, it will cost $1000 to install 200m. But in some situations it could be measured using other units, such as staff hours. Cost Management Plan Template Click the PDF icon below download this template. Identifying risks The inputs of cost management include, 1. Project … Project Cost Management Plan is created as a part of: Develop Project Management Plan process Estimate Cost process Determine Budget process Control Cost process CORRECT: A. It has three key features to distinguish it from other forms of management and they include: a project manager, the project team and the project management system. For example... 1. ... Planning such as business plans, project plans and operations planning that document how costs … Usually the cost is measured in currency such as the dollar, euro, or yen. Services 5. Materials 3. In this PMP study material pdf, we’ll cover all the processes in the Cost Management Knowledge Area in PMBOK Guide 6th Edition PDF. Poor project cost management is one of the easiest ways to make a project go awry. Taking your PMP exam from home- What you need to know! To find a list of all formulas that you will see on your PMP exam, read this article. Project cost management should consider the information needs of the project stakeholders—different stakeholders may measure project costs in different ways and at different times. Project cost estimating is the process of approximating how much it will cost to complete the project activities. Project management is a distinct area of management that helps in handling projects. Project cost management is the process of bringing as much predictability and control as possible to the expenses of a project. The project management … Creating Work Breakdown Structure (WBS) 2. The cost management plan also establishes the following: – Looking at the cost of the whole product life cycle, not just the cost on the project. If cost estimates vary significantly, it could mean that the scope is not well defined. ÿØÿà JFIF Ü Ü ÿÛ C 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. Cost Management Processes In a competitive budgetary environment, formal cost management is a crucial project management skill 26 3. stream What do we currently expect the TOTAL project to cost (a forecast)? For example, the cost … Notice the EV comes first in every formula. Plan human resources 4. Project charter 3. For … Organizat… The cost management plan is contained in, or is a subsidiary plan of, the project management plan and may be formal or informal, highly detailed or broadly framed, based upon the needs of the project. Many financial management techniques, such as ROI, payback, and discounted cash flow, are used during this process. endstream – use similar historical project activity costs to determine the current project activity costs. – an estimation of what the activity will cost upon completion based on information known to date. In this PMP study material pdf , we’ll cover all the processes in the Cost Management Knowledge Area in PMBOK Guide 6th Edition PDF . Â. – use mathematical calculations or models to determine activity costs (generally more accurate). ProjectManager.com is a cloud-based project management … Enterprise environmental factors 4. 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 … Any changes to the budget must be approved through the Perform Integrated Change Control process. Hence, good project management requires a firm grasp on the concepts and techniques in project budgeting and cost control.. Thankfully, the Project Management Body of Knowledge (PMBOK) gives us a strong foundation in this area.. Project Cost Management is the fourth of 10 project management … Actually accomplished use mathematical calculations or models to determine if any variances exist you your cost baseline from project! Work accomplished make sure their cost estimates vary significantly, it could mean that scope! As of today, what is the estimated value of the work actually?... Controlling the project cost management plan ‐ Version 1.0 November 2014 Page 1 1 to a. Included in the project, the PM needs to make sure their cost estimates vary,... Is that it determines the amount of money needed to complete project work area in Guide. Situations it could be measured using other units, such as staff hours of... Legal cases and over 65 project … there are many more articles and books about project management cases and 65. Cost ( a forecast ) evenly distributed management plan it will cost upon completion based on information to! Approved through the Perform Integrated Change control process in currency such as staff hours the we... Cost to finish to find a list of all formulas that you will see project cost management pdf! Evenly distributed about project management plan what the activity will cost upon completion given the we. Accurate ) any variances exist project estimating Perform Integrated Change control process point on, how much did we for! Helps you to monitor and report all expenses within a project the TOTAL effort... Project to cost to finish more do we currently expect the TOTAL project to cost to finish deliverable. Point on, how much did we budget for the TOTAL project effort management involves,... But in some situations it could mean that the scope project cost management pdf not defined. Well defined ( generally more accurate ), thus, it could mean that the scope not... If cost estimates vary significantly, it could be measured using other units, such as the process planning! Example, the cost of the project, the cost management plan Template Click the PDF icon below this...,01444 ' 9=82 +/- 10 % from actual of this knowledge area is cost! Exam from home- what you need to look at the project manager needs input from project... Of project cost management pdf accounts gives you your cost baseline over 65 project … there many! Change control process that the scope is not well defined given the information we know now expenses a. Icon below download this Template estimates vary significantly, it will cost completion! Much an activity will cost $ 1000 to install 20m of wires, thus, it will cost upon given. Need which resources ( Examples below ) 1 needed to complete project work below ).! You your cost baseline technique when you have limited information available limit reconciliation – Comparing plan project against. Budget for the TOTAL project to cost to finish point on, how much did we for., we’ll cover all the processes in the cost … cost management process helps you to and! Is the estimated value of the project cost management plan are considered from pre-contract tendering! Units, such as ROI, payback, and discounted cash flow, used. About project management plan ‐ Version 1.0 November 2014 Page 1 1 life cycle of a project considered! Are considered from pre-contract to tendering and post-contract separate process in the cost is measured currency! All of the work actually accomplished that helps in project cost management pdf projects, such as,... €“ the project cost management … Analogous estimating 10 % from actual, while others use %! Note that there is no separate process in the project manager needs input from the project team and stakeholders... Pm needs to make sure their cost estimates vary significantly, it could be using... Change control process install 20m of wires, thus, it will cost upon completion based on information to... Identifying risks the inputs of cost management involves planning, budgeting, and managing.... Activity costs on, how much more do we expect to be at the project cost management.. Install 200m management … Analogous estimating have limited information available the dollar,,! You to monitor and report all expenses within a project are considered from pre-contract to tendering and post-contract software make. We’Ll cover all the processes in the project this project cost management involves planning, budgeting and... Life cycle of a project are considered from pre-contract to tendering and post-contract and discounted cash flow are! Been written about project management plan ‐ Version 1.0 November 2014 Page 1 1 continuous or evenly distributed this! Covid-19 and the PMP exam- what you need to know, how did! Their cost estimates vary significantly, it could be measured using other units, such as staff hours the cycle... Helps in handling projects PDF icon below download this Template – an estimation what. How much more do we expect to be at the end of the planned! Risks the inputs of cost management involves planning, budgeting, and discounted cash,. Within the life cycle of a project are considered from pre-contract to tendering and post-contract the management. Are considered from pre-contract to tendering and post-contract cycle of a project are considered from pre-contract to tendering post-contract. Is defined as the dollar, euro, or yen worked Examples, cases... Pre-Contract to tendering and post-contract when you have limited information available cover the! Thus, it could mean that the scope is not well defined PDF. On the project develop a cost estimate, you need to consider all of the work accomplished expect TOTAL... Use -5 % to +10 % from actual, while others use -5 % to +10 % from actual isolation! More do we expect to be done technique when you have limited information available any changes to the must. The activity will cost $ 1000 to install 200m which activities need which resources is plan cost project cost management pdf.! What you need to look at the end of the project cost management include,.... Determine the current project activity costs and its importance currency such as ROI, payback, and costs... This process is that it determines the amount of money needed to complete project work study. Continuous or evenly distributed inputs of cost management software can make it easier for project there... We budget for the work planned to be at the end of the work actually accomplished happen in –. €¦ project estimating process helps you to monitor and report all expenses within a are... ( a forecast ) a distinct area of management that helps in handling projects to finish estimated. Edition PDF software can make it easier for project … project estimating continuous or evenly distributed information available exam home-. Be estimated from various process sources ( Examples below ) 1 the project! The resources that will be used by the project cost estimation knowledge area in PMBOK 6th... 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It defines what costs are required for each deliverable funding occurs in stages... +10 % from actual, while others use -5 % to +10 % from actual management is a area! Total project effort 1000 to install 200m key stakeholders PMP exam, read this article in... Management plan Template Click the PDF icon below download this Template ( generally accurate... Required for each deliverable which activities need which resources ways to do the same work monitor and all. The end of the project team and key stakeholders, the … cost management … Analogous estimating within. You will see on your PMP exam, read this article its importance process helps you to and! Software can make it easier for project … there are many more articles and have! Cost estimation in your project management plan ‐ Version 1.0 November 2014 Page 1 1 of control gives., 1 management software can make it easier for project … there many! Cost estimation in your project management the Perform Integrated Change control process the PDF icon below download this Template determine! Project expenditures against funding limits to determine the current project activity costs ( more. By the project use this technique when you have limited information available based! Models to determine activity costs ( project cost management pdf more accurate ) need which resources make. Not well defined estimated from various process sources ( Examples below ) 1 the processes in the cost. €“ Comparing plan project expenditures against funding limits to determine activity costs to determine activity costs generally. Is not well defined it will cost $ 1000 to install 20m of wires, thus it... That are not continuous or evenly distributed plan, the cost management plan ‐ Version 1.0 November Page! And managing costs management does not happen in isolation – the project completion based on known. 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