Project Cost Management

Project cost management involves the processes needed to estimate, budget, and control costs, so the project can be completed within the approved budget.

The following processes and the primary goals of project cost management are below:

• Plan Cost Management. Goal: Cost Management Plan

• Estimate costs. Goal: activity cost estimates

• Determine budget. Goal: cost performance baseline

• Control costs. Goal: cost forecasts, change requests

The Cost Management Plan establishes how cost on the project will be managed and is primarily concerned with the cost of the resources needed to complete project work.

These costs can also include lifecycle costs which address recurring costs of using, maintaining, and supporting the product. The cost management plan usually establishes the following:

• Units of measure (e.g. days, weeks, months, liters, gallons, cubic yards, weight, etc.)

• Level of precision (e.g. 2 Decimal Pl. precision, 5 Decimal Pl. precision, rounding up/down, etc.)

• Level of accuracy (e.g. tolerances or acceptable ranges)

• Organizational procedure links which tie back to control accounts in the work breakdown structure

• Control thresholds – variance thresholds for measuring cost performance before action needs to be taken

• Rule of performance measurement – EVM (earned value management) rules of performance

• Reporting formats and process descriptions

There are a dozen questions or so on the exam relating to earned value. If you have never done this before, don't worry. We will address all the needed computations and formulas relating to cost management for the exam in the pages following.

The process of cost management is generally documented in the cost management plan. According to PMI, the cost management plan establishes the following:

• Level of accuracy - activity cost estimates rounded to a prescribed precision

• Unit of measure - standard workweek, blended rates for resources and similar measurements are units of measure for the project

• WBS procedure links - the WBS component for project cost accounting is called the control account (CA)

• Control thresholds - levels of variance that are allowed before action needs to be taken

• Earned value rules of performance

• Reporting formats

• Process descriptions