ExampleCostManagementAssignment4.docx

Cost Management is one of the most important elements in all of the project management knowledge areas. There are several activities in a project, several project resources work on project activities and several materials, tool and equipment are used to complete the project scope (Bridges, 2019). All these require a budget to be allocated. Because you need to purchase tools, materials, and the company must pay salaries of the project personnel. This knowledge area deals with the management of the expenses and the budget of the project.

Cost Management includes all the required elements to complete the project within the approved budget. The initial process is to determine a required budget to complete the project and then aims to monitor and control the project costs to meet the determined budget (Doloi, Understanding stakeholders’ perspective of cost estimation in project management, 2011). The only output of cost management element is to produce a Project Budget (PMI, 2008). After the project scope is clear and project activities are defined, each project deliverable and each project activity will have an associated cost. Project resources will perform activities, and they all will have some costs such as expenses and salaries. Of course, there will be tools, materials or equipment that need to be used during the project as well and these will require a budget as well.

After the project budget is determined, the main function of cost management will be to keep on measuring and monitoring the cost performance of the project to meet the agreed budget. Cost Management has 4 processes, three of these processes belong to planning process group, and on of them belongs to monitoring and controlling process group (PMI, 2008). These processes are:

1. Plan cost management
2. Estimate costs
3. Determine budget 
4. Control costs

“Project Cost Management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so the project can be completed within the approved budget. (Blog, 2020)” Project cost management is particularly concerned with the cost of various resources that are required to complete the project activities. It assists the project manager in foreseeing the project expenses and thus taking precautionary actions to mitigate the chances of over expenditure (Ciminelli, 2021). Cost management in an essence acts as an umbrella that covers the entire project life cycle, beginning from its initial planning phase until its completion and handover. 

When we talk about cost, in terms of project management, there can be five types of costs incurred:

1. Fixed Cost: 
2. Variable Cost: 
3. Direct Cost: 
4. Indirect Cost: 
5. Sunk Cost: 

Inputs

Tools & Techniques

Output

1. Project Charter

1. Expert Judgement
2. Data Analysis
3. Meetings

Cost Management Plan

2. Project Management Plan
· Schedule Mgmt Plan
· Risk Mgmt Plan

4.

3. Enterprise Environmental Factors

4. Organizational Process Assets

(PMI, 2008) Plan Cost Management

This is the second process of the project cost management plan is estimating the cost of the resources required for project completion. Since cost is an important variable that ensures project success, you must be very careful while producing the estimated amount of the total project cost (Atkinson, 1999). Throughout the project lifecycle, this process is performed at periodical intervals. A project manager uses various methods to estimate costs depending on the amount of information available.

Inputs

Tools & Techniques

Output

1. Project Management Plan
· Cost Management Plan
· Quality Management Plan
· Scope Baseline

1. Expert Judgment
2. Analogous Estimation
3. Parametric Estimation
4. Bottom-up Estimation
5. Three Point Estimation
6. Data Analysis
· Alternative Analysis
· Reserve Analysis
· Cost of Quality
7. Project Management
· Information System
8. Decision Making
· Vote

1. Cost Estimates
2. Basis Estimates
3. Project Document Updates
· Assumption Log
· Lessons Learned Register
· Risk Register

2. Project Documents
· Lessons Learned Register
· Project Schedule
· Resources Requirements
· Risk Register

3. Enterprise Environmental Factors

4. Organizational Process Assets

(PMI, 2008) Estimates Costs
Determine Budget is the third process where the estimated cost of individual activities or tasks is summed up to draw the cost baseline (Doloi, Understanding stakeholders’ perspective of cost estimation in project management, 2011). The cost baseline of the budget includes all the authorized funds that are essential for project execution (Ciminelli, 2021). Cost baseline is an authorized time-phased budget that is used as the initial point for monitoring and calculating the project performance and progress. This process is executed at specific points in a project which are generally predefined (Bridges, 2019). On the next page is a table contains the various inputs, tools & techniques and outputs involved in this process:

Inputs

Tools & Techniques

Output

1. Project Management Plan
· Cost Management Plan
· Resource Management Plan
· Scope Baseline

1. Expert Judgment
2. Cost Aggregation
3. Data Analysis
· Reserve Analysis
4. Historical Information Review
5. Funding Limit Reconciliation
6. Financing

1. Cost Estimates
2. Project Funding requirements
3. Project documents updates
· Cost Estimates
· Project Schedule
· Risk Register

2. Project Documents
· Basis of Estimates
· Cost of Estimates
· Project Schedule
· Risk Register

3. Business Documents
· Business Case
· Benefits Management Plan

4. Agreements

5. Enterprise Environmental Factors

6. Organizational Process Assets

(PMI, 2008) Determine Budget
Control costs is the final process of project cost management which is primarily concerned with the measurement of variances of the actual costs from the proposed baseline (PMI, 2008). Several procedures are implemented to track the project performance and expenses against its progress rate. It’s important that all these variances are recorded and crossed-compared with your actual cost baseline. It can be concluded that via control costs process, a project manager can control entire project expenses and close it within the agreed budget (Dmitriy, 2020). Control costs process makes use of various inputs, tools & techniques, and outputs, which I have listed in the below table:

Inputs

Tools & Techniques

Output

1. Project Management Plan
· Cost Management Plan
· Cost Baseline
· Performance Measurement Baseline

1. Expert Judgment
2. Data Analysis
· Earned Value Analysis
· Variance Analysis
· Reserve Analysis
3. To-Complete Performance Index
4. Project MIS

1. Work Performance Information
2. Cost Forecasts
3. Change Requests
4. Project Management Plan Updates
· Cost Management Plan
· Cost Baseline
· Performance Measurement Baseline
5. Project Documents Updates
· Assumption Logs
· Basis of Estimates
· Cost Estimates
· Lessons Learned Register
· Risk Register

2. Project Documents
· Lessons Learned Register

3. Project Funding Requirements

4. Work Performance Data

5. Organizational Process Assets

(PMI, 2008) Control Costs

Works Cited
Atkinson, R. (1999). Project management: cost, time and quality, two best guesses and a phenomenon, its time to accept other success criteria. International Journal of Project Management, 337-342.
Blog, C. (2020, July 1). How to Manage Cost in Project Management. Retrieved from Clarizen : https://www.clarizen.com/manage-cost-project-management/
Bovsunovskaya, M. (2016). Document Support of Cost Management in Underground Construction Projects. Procedia Engineering, 960-964.
Bridges, J. (2019, 4 December). Cost Management Basics. Retrieved from Project Manager: https://www.projectmanager.com/training/basics-project-cost-management
Ciminelli, F. (2021, June 1). Chief Operating Officer. (J. Hagelberger, Interviewer)
Dmitriy. (2020, February 19). Project Budget Example: How to Create an Accurate Project Budget for Junior Project Managers (Video). Youtube. https://pmbasics101.com/project-budget-example/.
Doloi, H. (2011). Understanding stakeholders’ perspective of cost estimation in project management. International Journal of Project Management, 622-636.
Doloi, H. (2013). Cost Overruns and Failure in Project Management: Understanding the Roles of Key Stakeholders in Construction Projects. Journal of Construction Engineering and Management, 28-42.
Edureka. (2020, March 2). Introduction to Project Cost Management (Video). Youtube. https://www.youtube.com/watch?v=8xxkA20ycck.
Hall, H. (2017, January 10). 6 Practical Ways to Actually Improve Your Cost Management (Video). Youtube. https://projectriskcoach.com/6-practical-ways-to-actually-improve-your-cost-management/.
Harrin, E. (2020, March 3). What is project cost control? [Video]. Youtube Video. https://www.projectmanagement.com/blog/blogPostingView.cfm?blogPostingID=62623&thisPageURL=/blog-post/62623/What-is-project-cost-control—Video–#_=_.
Jaakko Kujala, T. B. (2014). Challenges of Cost Management in Complex Projects. International Journal of Business and Management.
Jainendrakumar, T. D. (2015, June). Project Cost management for Project Managers based on PMBOK. PM World Journal , pp. 1-13.
Manager, P. (2011, November 7). Project Cost Management Tips: Keeping Your Project Budget Under Control. Youtube Video. https://www.youtube.com/watch?v=oXhgwn-girI.
PMI. (2008). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). Newton Square, Pennsylvania, USA : Project Management Institute.
RogerAtkinson. (1999). Project management: cost, time and quality, two best guesses and a phenomenon, its time to accept other success criteria. International Journal of Project Management, 337-342.
Unknown. (2018, June 29). 4 Main Processes of Cost Management. Retrieved from Master of Project Academy: https://blog.masterofproject.com/cost-management/