The cost management plan clearly defines how the costs on a project will be managed throughout the projects lifecycle. Cost estimating involves defining cost estimates for tasks. Estimating the costs the first step in cost management is to estimate the costs of each activity in the project. Cost estimate information should be included when the communication plan is developed as part of the project management process. The develop project management plan in integration management involves the creation of the cost management plan. Because this step often occurs in the planning phase, it is important to understand that the estimated costs are your best. A cost management plan is the outline of a projects estimation, allocation, and control of costs for the necessary resources needed to complete all the activities of the project. Usually the cost is measured in currency such as the dollar, euro, or yen. You can check out the complete range of project management pdf ebooks free from this website. Cost and budget, these two words are used interchangeably in the exam.
It refers to all the activities involved in the planning and controlling a projects budget. An important output of project cost management is a cost estimate there are several types of cost estimates and tools and techniques to help create them it is also important to develop a cost management plan that describes how cost variances will be managed on the project 12. Managing the project budget free ebook in pdf format. Many projects start with good ideas, huge investments and great efforts. The following cost management activities are documented in this plan. Cost management does not happen in isolation the project manager needs input from the project team and key stakeholders. Cost control is the part of project management such that cost management processes involved in planning, estimating, budgeting, and controlling costs. Project cost management makes a clear distinction between the process to estimate costs as seen by the. Costs or expenses are recorded by team members, using expense forms. Cost management process project management templates. Project cost management includes the processes involved in planning, estimating, budgeting, and controlling costs so that the project can be. Create a project cost and budget development system.
Achieving project completion within the estimated cost is fundamental criteria for success of any project. It sets the format and standards by which the project costs are. The plan cost management process institutes policies, procedures, and documents which plan, manage, update and control project cost. The process of cost budgeting defines time phased cost estimates for the project. Hence, good project management requires a firm grasp on the concepts and techniques in project budgeting and cost control thankfully, the project management body of knowledge pmbok gives us a strong foundation in this area project cost management is the fourth of. Project cost management pmp what is cost management.
A cost management plan must take into account the variables that impact the budget, whether materials or people. Which of the following inputs best conveys this requirement to the estimate costs process so that the insurance cost is estimated and subsequently budgeted. Hence cost management and control is very important consideration for ensuring cost. Any discussion of project cost management must also include fore casting, which takes place at the front end of the project environment. Processes primarily concerned with the cost of resources required to complete the project activities. This paper presents the current big issues in cost management. Among other things, a cost management plan identifies the individual or group responsible. Because the project scope, project schedule, or other factors can change, its important to update price estimates with the help of cost management software so you have an accurate idea of how much the project will cost. You may or may not be a project manager, but now you can be the boss. Cost management should occur early in project planning in order to establish a framework for all cost management processes and ensure that the. Hence, good project management requires a firm grasp on the concepts and techniques in project budgeting and cost control. It is important to note that the step of creating the cost management plan exists irrespective of where it is created.
It includes activities such as planning, estimating, budgeting, financing, funding, managing, controlling, and benchmarking costs so that the project can be completed within time and the approved budget and the project performance could be improved in time. Cost management is the process by which one plans and manages the budget of a business or project. It covers the theoretical aspects, the causes and effects, and possible countermeasures. Pdf cost management of large construction projects in. The cost object is a unit or multiple units of a distinct product or service called a job. Cost management is one of the fundamental and yet most challenging tasks for a project manager. T d jainendrakumar the cost management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. The pmbok describes three areas or processes for effective cost management. Cost management plan template free management ebooks. A cost management plan is a document that describes how the organization will manage cost variances on the project based on estimation, but acted on through monitoring and controlling. Project cost management for project managers based on. Thankfully, the project management body of knowledge pmbok gives us a strong foundation in this area project cost management is the fourth of 10 project. There are several types of cost estimation in project management, including fixed, variable, direct, and indirect cost estimation.
The purpose of cost management is to ensure project costs are planned based on project need, tracked, changed according to procedure and reported on a regular basis. Project cost management is the process of bringing as much predictability and control as possible to the expenses of a project. Tackle anything from small projects to large initiatives. The cost management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. Processes that help to estimate, budget, and control cost so as to ensure that the project is completed within the approved budget. It helps keep track of all the project cost and at the same time guarantees. Costs include both human resource and physical resource costs. The first process of this knowledge area is plan cost management process. Page iv wsdot cost estimating manual for projects m 3034. It allows a business to predict coming expenses in order to reduce the chances of it going over budget. Pmp certification study notes 7 project cost management. Project cost management for project managers based on pmbok. Projected costs are calculated during the planning phase of a project and must be approved before work begins. Poor project cost management is one of the easiest ways to make a project go awry.
The first task is to set the budget based on cost estimates and the second is to manage the costs so that they remain within the budget that. Cost management is a really important one among all the project management knowledge areas. The triple constraint in project management refers to three metrics that define a project. A particular project in the domain of civil construction requires that every onsite worker be insured.
Cost benefit analysis pdf the cost benefit analysis is based on the comparison of a base case and one or more alternatives. Show full abstract project manager and, determine budget the assignment of costs. Project cost management preface this ebook describes the process of cost management in projects. Surprise expenses are the enemy of any organization, so being able to accurately forecast the costs of a project ahead of time is a key skill to possess. Train project managers in systematic project management 5. The basis of estimate document can be used effectively as a communication tool to convey key information about the project to others. Discuss the term job costing and process costing systems with examples job costing systems.
Created during the project planning phase, the cost management plan is a document that defines how you manage, control, and communicate a projects costs in order to complete the project on budget. Project managers must make sure that their projects are well defined, have accurate time and. Large construction projects are inherently complex and dynamic. Cost management plan a cost management plan is a document that describes how the organization will manage cost variances on the project based on estimation, but acted on through monitoring and controlling labor costs are a large percentage of total project cost time. Construction contingency a standardized markup applied to the construction cost of a project that accounts for uncertainties in quantities, unit costs, and minor risk events that typically take place during construction. Cost management overview project management professional.
Involved in controlling costs are processes centered around planning, estimating, budgeting, financing, funding and managing costs so that the project can be completed within the approved budget. Its aim is described in pmp courses as to define the necessary budget to execute the project and its aim is to monitor and control the project costs to match the approved budget. Knowledge areas associated with the plan cost management process are. Cost management is the process of estimating, allocating, and controlling the costs in a project. Each job generally uses different amounts of resources. 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. In the case of a project, it helps the project manager estimate what the project will cost and set in place controls by which they can reduce the chance of the project going over budget. The work breakdown structure wbs is the basis for the cost management plan because the costs are totaled or rolled up from the costs for the individual work packages in the wbs. This project cost management process helps you to monitor and report all expenses within a project.
It regulates how project costs are managed through the project life cycle. Therefore, in cost management, the triple constraint is at play. Cost is one of the key performance indicators for projects. Cost management is concerned with the process of finding the right project and carrying out the project the right way. Quantify risk factors and incorporate them as cost 4. The scope of the cost management plan is the processes, roles, and tools used to plan and manage project costs throughout the life of the project. The cost management plan guides these four processes. Cost management knowledge area plans how to manage expenses and budget of a project, monitor and control the status of the project and measures budget performance. A major contribution to unsuccessful projects is the lack of.
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