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Cost Management Project Cost Control (What You Need To Know)

Cost management involves knowing the financial and human resources required to complete a project within an approved budget. It includes cost estimating, cost budgeting, and cost control. Cost estimating develops approximations of resource costs using techniques like expert judgment, analogous estimating, and three-point estimating. Cost budgeting allocates costs to work packages to establish a baseline using approaches like cost aggregation and reserve analysis. Cost control monitors project performance against the budget through earned value management, variance analysis, and performance reviews to forecast costs and identify issues.

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Adrianne Ajeng
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35 views10 pages

Cost Management Project Cost Control (What You Need To Know)

Cost management involves knowing the financial and human resources required to complete a project within an approved budget. It includes cost estimating, cost budgeting, and cost control. Cost estimating develops approximations of resource costs using techniques like expert judgment, analogous estimating, and three-point estimating. Cost budgeting allocates costs to work packages to establish a baseline using approaches like cost aggregation and reserve analysis. Cost control monitors project performance against the budget through earned value management, variance analysis, and performance reviews to forecast costs and identify issues.

Uploaded by

Adrianne Ajeng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Cost Management

Project Cost Control


(what you need to know)

Cost management is one of the fundamental and yet most challenging tasks for a project manager.

What will we learn?

1. Introduction

1.1 Definition

1.2 Cost Types

2. Main Process

2.1 Cost Estimating

2.2 Cost Budgeting

2.3 Cost Control

1.1 What is Project Cost


Management?

Costs are usually measured in monetary units, such as dollars. It is a


resource sacrificed or foregone to achieve a specific objective, or
something given up in exchange.

Cost management involves knowing the financial and human resources


required to complete a project within an approved budget

Project cost management includes the processes required to ensure


that the project is completed within an approved budget.

1.2 Different Cost Types

Direct Costs

These costs can easily beattributed to the project and are charged to the project on an item by item
basis.
Examples are labor (people), consultant fees, raw materials, software licenses, travel.

Indirect Costs

These costs are for items that benefit more than one project, and only a proportion of their total cost is
charged to the project.
Examples are telephone charges, office space (rent), office equipment, general administration, company
insurance.

Reserve Analysis

A contingency reserve is added to projects to cover risk. This fund is used when encountering unexpected
events during the project. Your budget will be made up of direct and indirect costs, with a small amount
assignedfor contingency reserve.

2. How do we manage cost?

Main Process :
2.1 Cost estimating
2.2 Cost budgeting
2.3 Cost control

Cost
Estimating

Cost
Budgeting

Cost
Control

2.1 Cost Estimating

Developing an approximation or estimate of the costs of the resources needed to


complete a project.
1. Expert Judgment:This approach uses subject matter experts (SMEs) to calculate the total
cost of the project. This approach can be useful because,withtheaidof expert knowledge
and experience, factorsthat are not always apparent to non-experts can be accounted for.
2. Supplier Bid Analysis:This approach compares bids from different suppliers to arrive at a
cost estimate for the project.
3. Analogous Estimating:This approach uses history from similar projects to create an
estimate.It looks at howmuch past projects cost while taking any differences with the new
project into account.
4. Three-Point Estimating:This approach uses the weighted average of three estimates
--best-case, most likely case and worst case -- to gain a greater degree of control over how
the value of a task or activity is calculated.
5. Parametric Estimating:This approach uses a statistical relationship between historical
data and other variables, such as lines of code in a software application or square footage of
a building to calculate an estimate.
6. Top-down approach: deciding how much the project will cost and dividing the amount
between the work packages.
7. Bottom-up approach: estimating the total cost of the project by costing the lowest-level
work packages and rolling up.

2.2 Cost Budgeting

Budgeting is allocating costs to work packages to establish a cost baseline to


measure project performance

To determine the project budget, the PMBOK suggests using several techniques:
1. Cost Aggregation: requires you to aggregate or combine costs from an activity level
to a work package level. The final sum of the cost estimates is applied to the cost
baseline.
2. Reserve Analysis: requires you to create a buffer or reserve to protect against cost
overruns. The degree of protection should be equivalent to the risk foreseen in the
project. The buffer is part of the project budget, but not included in the project
baseline.
3. Historical Data: requires you to think about estimates from closed projects to
determine the budget of the new project. This is very similar to analogous estimation
described earlier.
4. Funding Limit Reconciliation: requires you to adhere to the constraints imposed by
the funding limit. The funding limit is based on the limited amount of cash dedicated to
your project. To avoid large variations in the expenditure of project funds, you may
need to revise the project schedule or the use of project resources.

2.3 Cost Control

Comparing Planned Value and Earned Value. Earned value management is


an important tool for cost control. Many organizations around the globe
have problems with cost control.
1. Earned Value Management: uses a set of formulas to help measure the
progress of a project against the plan.
2. Forecasting: uses the current financial situation to project future costs. The
forecast is based on budgeted cost, total estimated cost, cost commitments,
cost to date, and any over or under budgeted costs.
3. To-Complete Performance Index (TCPI): represents the level of project
performance that future work needs to be implemented to meet the budget.
4. Variance Analysis: involves analyzing the difference or variance between the
budgeted costs and the actual costs to indicate whether the project is on
budget.
5. Performance Reviews: used to check the health of a project. Includes an
analysis of project costs, schedule, scope, quality, and team morale.

Conclusion

It is better to come in slightly underbudget than over budget. Your


customer will be happier, and it will reflect well on your ability to create
an accurate budget and stick to it.

Whichever budgeting approach you choose, spend time to create your


budget, check it carefully, and review itoften to make sure you stay on
track.

Thankyou
Adrianne Ajeng Anisa Lestari

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