Project Cost

Management
CS414 - Project Management
Group 4 - Binary Bosses
26.03.2024
CONTENT
1. What is ‘project cost management’ ?
2. Plan cost management
3. Estimate costs
4. Determine budget
What is Project Cost Management ?

The process of estimating, budgeting and controlling

costs throughout the project life cycle, with the
objective of keeping expenditures within the approved
budget.
Definition of plan cost management

Plan cost management is setting up guidelines and

methodologies for estimating, budgeting, and controlling
costs.
Importance
● Budget Control: ensures that projects stay within
budgetary constraints, preventing overspending and
financial instability.
● Resource Optimization: resources can be allocated
efficiently, maximizing their utilization and
minimizing waste.
● Risk Mitigation: minimize the impact of unforeseen
expenses and ensures better overall project
performance.

● Stakeholder Confidence: Instills confidence in

stakeholders by demonstrating that the project team
has a clear understanding of costs and is capable of
managing them effectively.
Resource planning
Resource planning is the process of determining what
resources are required to deliver projects and then
allocating and scheduling the work based on team capacity.
Planning your resources involves:
● Understanding who needs to work on what project and
when
● Figuring out who is available to do the work
● Deciding what’s the best use of your team’s time
● Finding compromises between competing priorities
Main steps in the resource planning process

1. Lay out project tasks and the resources you

have
2. Assign work based on availability, skills, and
interests
3. Consider the future demands on resources
4. Get feedback from stakeholders on proposed
allocations
5. Make adjustments to your resource plan when
needed
Resource planning Tools

● Asana
● Jira
● Smartsheet
● Microsoft Project
● Trello
● Resource Guru
Cost control measures

Cost control is a practice used by finance professionals

that analyzes a business's overall expenses and reduces
project costs to increase profit.
Cost reporting and documentation
● To provide stakeholders with clear , transparent and
timely information about project costs.
● This information enables informed decision making ,
ensures accountability and facilitates effective
communication among stakeholders and project team
members.
Elements of cost reports
● Actual costs

● Planned costs

● Variances

● Forecasted costs

● Risk exposure

● Change orders
Cost reporting frequency

Conducted at typically on weekly or monthly basis

depending on size and complexity of project.
Cost management tools
● Microsoft project - Cost estimation , budgeting , resource allocation, tracking
project costs
● QuickBooks - An accounting software used to manage finances including
project costs
● OpenProject - An open source project management software that includes cost
management features such as budgeting , expense tracking, time tracking
● BaseCamp - A popular project management and collaboration tool that includes
basic cost tracking features.
● SmartSheet - Has features for budget tracking, resource management and real
time reporting.
Risk management and cost
STEPS
1. Risk identification

2. Risk assessment

3. Cost estimation for risks

4. Contingency reserves

5. Risk monitoring and controlling

Contractual Considerations

● Vendor selection

● Contract Negotiation

● Pricing models

● Payment terms

● Change management
Cost optimization strategies

● Value engineering
● Resource optimization
● Process improvement
● Cost benefit analysis
● Negotiation and vendor management
● Risk management
● Technology adoption
 Project Cost Estimation

● Cost estimation is the process of estimating all

of the costs associated with completing a
project within scope and according to its
timeline.

● This is a critical step during the project

planning phase because it helps project
managers create a project budget that covers
the project costs .
 Types of Project Costs
There are five main types of costs that make up the total project cost.

1. Direct costs Costs attached to specific activities and easier to Labor costs, material costs,
accurately estimate. equipment rental fees

2. Indirect costs Expenses that are not directly tied to a specific project Administrative salaries, rent,
activity but still contribute to the overall project. and general supplies.

3. Fixed costs Costs that don’t change throughout the life cycle of the Rental costs, insurance
project. premiums, property taxes

4. Variable costs Costs that change due to the amount of work that’s done in Hourly labour wages,
the project materials, fuel costs

5. Sunk costs Refers to a cost that has already been incurred and Marketing, research,
cannot be recovered. installation of new software
 Cost Estimation Techniques

● Involves looking at budgets for similar past projects

and applying the costs to a current endeavor.
01 Analogous estimating
● Relies upon a combination of historical data and
expert judgment

● Larger project is broken down into a number of

02 Bottom-up estimating smaller components and estimating costs
specifically for each of these smaller works..
 ● This approach determines the underlying unit cost
for a particular component of a project and then
sales that unit cost as appropriate.
03 Parametric estimating
● Cost is estimated based on the relationship
between certain variables and historical data.

● Using the three-point estimate helps project

managers obtain more accurate estimates by

04 Three-point estimating determining costs based on three scenarios:

○ The best-case estimate
○ The most likely estimate
○ The worst-case estimate
 Project Cost Breakdown Structure
● A cost breakdown structure (CBS) is a
very important project costing tool
that details the individual costs of a
project on a document.

● Similar to a work breakdown structure

(WBS), it’s a hierarchical chart where
each row represents a type of cost

❏ Creating a cost breakdown structure might be time-consuming, but one that’s

worth the effort in that the result is a more accurate estimate of costs.
 Software Tools for Cost Estimation
➔ Microsoft Excel

➔ Project management software such as Microsoft Project, Primavera P6 and Jira

➔ Cost estimation software such as CostOS, Esti-Mate and RSMeans Data Online

➔ Building Information Modeling (BIM) Software such as Autodesk Revit and

Trimble Tekla

➔ Cost Estimation Plugins and Extensions

Determine Budget
Project Budget : The total amount of monetary
resources that are allocated for particular goals and
objectives of the project for a specific period of time.

● Determine budget is the process of aggregating the

estimated costs of individual activities or work
packages to establish an authorized cost baseline.
Importance of Project Budget
● It’s an essential part of securing project funding
● A well-planned budget provides the basis for project
cost control
● A project budget has a direct effect on the
company's financial viability
Project Cost Categories
● Human Resources
● Travelling Spendings
● Training Fees
● Material Resources
● Research Expenses
● Professional Services
● Capital expenditures
● Contingency Reserves
Cost budgeting techniques

● Incremental Budgeting
● Activity Based Budgeting
● Value Proposition
● Zero Based Budgeting
● Flexible Budgeting
Steps
● Utilize the WBS for work breakdown and cost
estimation.
● Learn from historical data for successful budgeting
strategies.
● Investigate resource availability for accurate cost
estimation.
● Ensure alignment with project policies for budget
compliance.
Inputs
● Cost Management Plan
● Scope Baseline
● Activity Cost Estimates
● Basis of Estimates
● Project Schedule
● Resource Calendars
● Risk Register
● Agreements
● Organizational Process Assets
Tools & Techniques
Software Tools:

● Microsoft Excel
● Microsoft Project
● Oracle Primavera P6
● QuickBooks
● SAP ERP
● Procore
● ProjectManager.com
● Smartsheet
Tools & Techniques cntd.

Techniques:
● Cost aggregation
● Reserve analysis
● Expert judgement
● Historical relationships
● Funding limit reconciliation.
Outputs

● Cost baseline
● Project funding requirements
● Project documents updates
Budgeting & Risk Management
● Integrate risk assessment into budgeting for effectiveness.
● Address uncertainties to protect project finances.
● Cost estimates should factor in identified risks.
● Assess risks related to team experience, technology, time,
and resources.
● Assign risk percentages based on project components.
● Allocate 25-30% of total project cost for risk assessment.
● Consider team experience from past projects.
● Provide training to mitigate risks before finalizing budget.
 Project Budgeting Tips

● Document your process when putting together a budget.

● Create contingencies.
● Project budgeting is a team effort.
● Know your resources and their associated costs.
● When estimating costs don’t forget about task duration.
● The budget is a great tool for tracking performance.

* Contingencies - ‘known unknowns’

* Management Reserves - ‘unknown unknowns’
References
● https://www.projectengineer.net/knowledge-areas/project-cost/determine-budge
t/
● https://www.projectmanagement.com/blog-post/11180/project-cost-managemen
t--determining-your-budget#_=_
● https://www.project-analysis.com/2021/06/determine-budget-process.html
● https://mymanagementguide.com/guidelines/project-management/cost-managem
ent/determining-project-budget/
● https://www.projectmanager.com/training/create-and-manage-project-budget
● https://www.forecast.app/blog/how-to-create-a-project-budget
Any Questions?
It’s Time for the
Quiz !
Thank you !!!