Project Cost Management

Project manager managing project costs

Successful projects accomplish the stated project goals, with minimal scope creep, and do so within the approved budget. By implementing project cost management into your project management processes, you can control the costs of your project while maintaining quality and meeting deadlines.

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What is project cost management?

Cost management in project management is the process of planning, estimating, budgeting, and controlling project costs. Cost management processes are in place to help project teams plan and control budgets during the project life cycle. While cost management overall is a very complicated process and a critical project management knowledge area, we can break it down into four processes:

1. Resource planning

While resource management is in place to plan, allocate, and schedule the resources needed for each stage of a project, resource planning looks specifically at the costs associated with each of these resources. Because of the complexity of this process, a work breakdown structure (WBS) can help to simplify and provide clarity. Using your resource planning software, identify what resources will be used to complete each item in the WBS, determine the associated costs, and perform a cost-benefit analysis.

2. Cost estimation

Cost estimation is the process of approximating the costs associated with each of the resources required for all scheduled activities. Cost estimating forecasts the cost of completing a project within a defined scope. Given that scope tends to shift throughout the life of a project, cost estimation is not a one time process. Effective cost management requires project managers to iterate on cost estimations whenever scope changes or change requests are approved. These estimations provide a summation of all costs involved in successfully finishing a project, from inception to completion.

To get a good estimate at the costs, you can use one of the following techniques:

3. Cost budget

Cost estimations lead directly into the cost budgets. In this step, you will determine the cost baseline and the funding requirements for the project. A good project budget will help you make key decisions with respect to the project schedule and resource allocation constraints. Combine individual activity cost estimates into a total project cost, establish the timing of the costs, and measure the progress of the project against the approximated baseline costs. These budgets should account for everything from direct labor costs, to material costs, factory costs, equipment costs, administrative costs, and software costs.

To determine the cost budget, consider the following techniques:

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4. Cost control

Good project managers will carefully monitor the cost of their projects to prevent scope creep. This includes watching to see where actual cost has varied from estimated cost. Cost control also involves informing the stakeholders of cost discrepancies that vary too much from the budgeted cost.

Controlling the budget requires being aware of the original budget, approved costs, forecasted costs, actual costs, and committed costs. If there are any changes to scope or if unforeseen risks have an impact on the approved budgets, the project manager will need to review the level of impact and take corrective action as needed.

To effectively control project costs, consider these tools and techniques:

Project cost management tools

A work management software like Workfront provides a centralized location for all project data and information, helping you to stay aware of variances in the budget, make approvals, track comments, and more.