Project cost management includes the processes required to ensure that a project team completes a project within an approved budget. There are three processes for project cost management such as cost estimating, cost budgeting, and cost control.
Cost estimating is to develop an approximation or estimate of the costs of the resources needed to complete a project. A cost management plan is a document that describes how the organization will manage cost variance on the project. Four typical problems with IT cost estimates can be classified as estimates are done too quickly, lack of estimating experience, human beings are biased toward underestimation, and management desires accuracy.
There are three basic types of cost estimates: rough order of magnitude (ROM) estimate – provides an estimate of what a project will cost, budgetary estimate – to allocate money into an organization’s budget, definitive estimate – provides an accurate estimate of project costs.
The basic tools and techniques for cost estimates can be divide into three types: analogous or top-down estimates – use the actual cost of a previous, similar project as the basis for estimating the cost of the current project, bottom-up estimates – estimating individual work items or activities and summing them to get a project total, parametric modeling – uses project characteristics (parameters) in a mathematical model to estimate project costs.
Cost budgeting is to allocate the overall cost estimate to individual work items to establish a baseline for measuring performance. It involves allocating the project cost estimate to individual work items over time. The main goal of this process is to produce a cost baseline for measuring project performance and project funding requirements. A cost baseline is a time-phased budget that project managers use to measure and monitor cost performance.
Cost control is to control changes to the project budget. It includes monitoring cost performance, ensuring that only appropriate project changes are included in a revised cost baseline, and informing project stakeholders of authorized changes to the project that will affect costs.
Earn value management (EVM) is a project performance measurement technique that integrates scope, time, and cost data. A baseline is the original project plan plus approved changes. EVM involves calculating three values for each activity or summary activity from a project’s WBS such as planned value (PV), actual cost (AC), and earned value (EV).
There are five levels for project portfolio management such as put all projects in one database, prioritize the projects in database, divide projects into two or three budgets based on type of investment, automate the repository, and apply modern portfolio theory, including risk-return tools that map project risk on a curve.
Cost estimating is to develop an approximation or estimate of the costs of the resources needed to complete a project. A cost management plan is a document that describes how the organization will manage cost variance on the project. Four typical problems with IT cost estimates can be classified as estimates are done too quickly, lack of estimating experience, human beings are biased toward underestimation, and management desires accuracy.
There are three basic types of cost estimates: rough order of magnitude (ROM) estimate – provides an estimate of what a project will cost, budgetary estimate – to allocate money into an organization’s budget, definitive estimate – provides an accurate estimate of project costs.
The basic tools and techniques for cost estimates can be divide into three types: analogous or top-down estimates – use the actual cost of a previous, similar project as the basis for estimating the cost of the current project, bottom-up estimates – estimating individual work items or activities and summing them to get a project total, parametric modeling – uses project characteristics (parameters) in a mathematical model to estimate project costs.
Cost budgeting is to allocate the overall cost estimate to individual work items to establish a baseline for measuring performance. It involves allocating the project cost estimate to individual work items over time. The main goal of this process is to produce a cost baseline for measuring project performance and project funding requirements. A cost baseline is a time-phased budget that project managers use to measure and monitor cost performance.
Cost control is to control changes to the project budget. It includes monitoring cost performance, ensuring that only appropriate project changes are included in a revised cost baseline, and informing project stakeholders of authorized changes to the project that will affect costs.
Earn value management (EVM) is a project performance measurement technique that integrates scope, time, and cost data. A baseline is the original project plan plus approved changes. EVM involves calculating three values for each activity or summary activity from a project’s WBS such as planned value (PV), actual cost (AC), and earned value (EV).
There are five levels for project portfolio management such as put all projects in one database, prioritize the projects in database, divide projects into two or three budgets based on type of investment, automate the repository, and apply modern portfolio theory, including risk-return tools that map project risk on a curve.
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