The process includes planning, estimating, budgeting, financing, funding, managing, and controlling the cost that is related to the project so it can be completed within the approved budget without going over it. Proper planning of the cost will keep the project floating for a long time without getting through any serious issues. The probability of that happening is a lot depending on the way the project works through its running time. The process in project cost management consists of plan cost management, estimate cost, determine a budget, and control cost.

Each one of them has its own duties that will be useful in making the cost of the project effective. The work of project cost management follows a different path for different types of projects. For example, if the scope of the project is small in nature, then the cost budgeting will be tightly linked and everything related to it can be viewed in a single process. The reason why this is the case with smaller projects is because of the tools and techniques that are being used in them. Each of the techniques and tools is different.

The key concept behind project cost management #

The primary concern behind the project cost management is the cost of the resources that are required to finish the activities related to the main project. Cost management deals with the cost of using, maintaining, and supporting the product, service of the project. It finds a way to reduce the cost of the project without degrading the quality that is mentioned in the planning. Different stakeholders measure projects in different ways at different times. The cost of an item can only be measured when the acquisition decision has been committed, an order placed, item delivered or the cost of the details are recorded for project accounting purposes.

Normally the prediction and analysis that goes on the financial performance of the project product get performed outside the project. Project cost management may address the addition process and other techniques such as return on investment discounted cash flow and investment payback analysis.

Does project cost management follow trends and new practices? #

Yes, project cost management does follow new trends that include expansion of earned value management to implement the concept of an earned schedule. The new extension of ES brings in a new thesis and replaces the schedule variance that has long been part of the traditional EVM. New trends include alternate equations for calculating schedule variances. 

The implementation of new trends makes the current efficiency of the project work faster. The project will earn more value than at a given point in time. The implementation of ES or Earned Schedule provides formulas for forecasting the project finish date this gets done by using earned schedule, actual time, and estimated duration.

Project cost management needs to be tailored since each project has different workings. The tailoring process includes knowledge management, estimating and budgeting, earned value management, the use of the agile approach, and governance. Detailed cost calculation is much more preferable for the project that is certain and has a fully defined scope. A project with uncertainty settles with lightweight estimation methods that can be used to generate fast, high-level forecasts.

Plan cost management #

Plan cost management defines the project cost and how the process of estimation, budget, management, monitoring, and control will get handled. The best thing about the plan cost management is the guidance and a sense of direction it provides on the project cost throughout the project. The process here will only get performed once and at any predefined points in the project.

Plan cost management outputs #

For proper project cost management, it will need to be associated with tools and techniques. 

Cost Management plan #

It is a component of the project magnet plan that describes the structures of the project costs. The structure includes planning and controlling. Here are some of the tools and techniques documented in the cost management plan.

• Unit of Measure

The unit is measured in measurements such as staff hours, staff days, weeks for time measures, meters, liters, tons, kilometers, and many that get defined for each resource.

• Level of precision

It is the degree of cost estimates that might go up or down based on the scope of the activities of the project.

• Level of accuracy

Here the realistic cost estimates get specified; some configurations may get added later in the process.

• Organizational Procedure links

The work breakdown structure or WBS provides a framework for the cost management plan. It allows the plant to be consistent with the estimates, budgets, and control of costs. It is issued for a project cost account and this process is known as a control account. Each of the control accounts is assigned with a unique code and an account number.

• Control threshold

Various thresholds might be specified for cost performance monitoring. It is typically seen as a percentage deviation from the baseline plan.

• Rules of performance measurement

The cost management plan may define points in the WBS and establish EVM techniques, and tracking methodologies, and EVM computation equations for calculating the project estimate compilation.

• Reporting formats 

Here the format and frequency of the various costs get defined.

• Additional details 

Some additional details are a description of strategic funding choices, the procedure to account for fluctuations in the currency exchange rate, and project cost recording.

Estimate Costs #

As the name suggests, Estimate cost is all about creating an approximation of the cost of resources that is required for the completion of the project work. The important aspect of Estimate cost is to determine the monetary resources required for the project. The process here gets performed periodically all through the project. The cost estimate is a quantitative assessment of the cost of resources that are needed for the activity. It plays a role of prediction that is based on actual statistics and information that is known at the time. The estimate includes identifications and consideration of cost alternatives to start and finish the project.

Cost estimates are seen in units of some current. It can be either dollars, euros, yen, and other forms of currency. The entire process of cost estimate gets reviewed and refined in the course of the project to add additional details. The accuracy of the project estimate will raise the progress of the project through the project life cycle. The cost estimate can be changed to the project, the changes can be made to labor, materials, equipment, services, and facilities.

Tools and Techniques of Estimate Cost #

Expert Judgement #

Here is the individual or group of specialized people who share knowledge in topics such as sharing the same project theme, information about industry, discipline, and application area, and lastly cost estimating methods.

Analog Estimating #

Analog costs take in values or attributes of a previous project that shares some similarities with the new one. The attributes include scope, cost, budget, duration, and measures of scale. The info n where can be used for estimating the parameter or measurement for the new project or the current project.

Parametric Estimating #

It uses a statistical relationship between historical data and other variables to calculate cost estimates of the entire project work. The critical factor of this process is the higher level of accuracy that it has on the calculation. It all depends on the sophistication of the data built into the model.

Bottom-up estimating

It is a method of estimating a component of work. The cost of individual work packages or activities is estimated to a greater level of specified detail. The detailed cost is summarized to a higher level for reporting and tracking purposes.

Three-point estimating #

The Accuracy of single-point cost estimates will get improved by implementing estimation uncertainty and using three estimating. They are most likely (cM), optimistic (cO), and pessimistic (cP). Most Likely includes the realistic effort assessment for the required work, the optimistic point focuses on the best-case scenarios for the activity, and lastly, the pessimistic analysis the worst-case scenario for the activity.

Date Analysis #

Data analysis also plays a part in estimating the cost process by going through three methods.

• Alternative analysis – the analysis here is a technique that gets used to evaluate identified options to select the right option that can be applied on the project.
• Reserve analysis -cost estimate might include contingency allowances to account for cost uncertainty.
• Cost of quality – evaluating the cost impact of additional investment can be used to prepare the cot estimates.

Project management information system #

It includes spreadsheets, simulation software, and statistical analysis tools for cost estimation.

Decision making  #

This process brings in the voting to estimate the cost process. Having voting gives plenty of other alternatives that can lead to the expected outcome in the future of the project.

Determine Budget #

Determine budget determines the cost baselines against the project performance can be monitored or controlled. The process does get performed once or at any predefined points in the project. Normally, a project budget includes all the capital that has been authorized for the running of the project. The cost baselines is an approved version of the time-phased project budget that implements contingency reserves and discards management reserves.

Tools and Techniques #

Expert judgment – here information about the industry, discipline, application area, principles, funding requirement, and sources gets considered to help with the project. Information about similar projects will also make the project better.

Cost aggregation –  #

Cost estimation is a combination of work packages in accordance with the WBS.

Data analysis – #

It helps with a budget process that includes reserve analysis, management reserves. Reserve analysis establishes the management reserves for the project. Management reserves hold some of the project budgets for management control purposes. It deals with the more unknown and the effect it can have on the project.

Historical Information Review #

Reviewing the historical information will help with creating parametric estimates that are analogous estimates. It can help with the development of mathematical models that can help with total project cost. The accuracy of the analogous and parametric models are different; they are reliable when historical information gets used in developing the model. Going through the historical information will tell a lot about the past project and how they have been handled before. So lessons can be learned to fix some of the common problems in the newer ones.

Funding Limit Reconciliation #

Expenditure of funds should be limited with funding limits on the funding that has been set up for the project. It puts data constraints for work into the project schedule.

Financing #

This is where the gathering of funding gets done for the project. Most of the projects that are public by nature will seek an external source of funds.  

Control Costs #

It helps to monitor the status of the project to update the project costs and manage changes to the cost baseline. Control cost handles the cost baselines and makes sure it gets maintained all throughout the project. Updating any budget requires knowledge of the actual cost that has been spent today. Raising the authorized budget can only be approved through an integrated change control process. Control cost also involves analyzing the relationship between the consumption of project funds and the work that is being achieved from the expenditures.

It includes

• Influencing the factors that can make changes to the authorized cost baseline
• Ensuring that change requests get acted on in a timely manner
• Managing the actual changes when they happen in the project
• It makes sure the cost expenditure does not go over the authorized funding.
• Monitors the cost performance to understand the variances.
• Monitor the work performances against funds expenditures.
• Preventing any unapproved changes.
• Informing the stakeholders of the approved changes and associated cost

Tools and Techniques #

Expert Judgment- making the right decision at the right time will solve plenty of problems from spreading in the organization. Expert judgment during the control cost forced takes in variance analysis, earned value analysis, forecasting, financial analysis. All of them will help with the control cost to make better decisions on the cost expenditure and the effect of the change request on the whole project. Having expertise in the field of cost estimation helps out a lot in figuring out most of the problems.

Data Analysis #

The techniques that get used in the data analysis process will be different. This section will cover the data analysis techniques and what they do in the control cost.

• Earned Value Analysis 

It compares the performance measurement baseline to the actual schedule and cost performance.  It integrates the scope baseline, ost baseline, schedule baselines to help create a performance measurement baseline. EVM then helps with planned value, earned value, and actual cost.

• Planned value is the authorized budget that has been assigned to schedule work
• Earned value is a measure of work expressed in terms of the work budget.
• The actual cost is a cost incurred for work performed on an activity during a specific time period.

• Variance analysis

It is an explanation for cost, schedule, and variance at completion variances. Cost and schedule variances are the most frequently used measurement for the project. They can be used to find the real measurement between planned cost and the actual cost of the project. Variance analysis is further divided into schedule variance and cost variance.

• Schedule variance is a measure of schedule performance between earned value and planned value. This is the amount that will tell whether the project is ahead or behind the delivery date at any given time.
• Cost Variance – it is an amount of budget deficit or surplus at any given point in time.
• Schedule performance index – it measures schedule efficiency that is shown in the ratio of earned value to planned value. It tells how effective the project team has been handling the work. Sometimes it implements a cost performance index to forecast the final project completion estimates.
• Cost Performance Index -it is a measure of cost efficiency of a budgeted resource shown as a ratio of earned value to actual cost.

• Trend analysis

It examines the project performance over time to determine the quality of the performance of the project. It includes the graphical analysis techniques to under the sand the direction of the performance,

• Reserved analysis

It helps monitor the status of contingencies and management reserves for the project. So it can determine if the reserves are needed or additional reserves should be requested. If The request for additional reserves does happen, these reserves may be used as a plan to cover the cost of risk resources and other contingencies.

Conclusion #

Each of the processes in project cost management helps make it more effective on projects. From plan cost management to control cost, each plays an influential role in planning, estimating, budgeting, financing, funding, managing, and controlling various costs behind the project. The project needs to be completed under the approved budget. If it needs additional finance then it is the job of the process to make sure whether that that is needed for the project or not. These are some of the decisions that matter in the running of the project.