Ch 7

PROJECT COST MANAGEMENT

• Project Cost Management includes the processes involved in planning,
estimating, budgeting, financing, funding, managing, and controlling
costs so that the project can be completed within the approved budget.
• Project Cost Management processes:
• 7.1 Plan Cost Management—The process that establishes the policies,
procedures, and documentation for planning, managing, expending,
and controlling project costs.
• 7.2 Estimate Costs—The process of developing an approximation of the
monetary resources needed to complete project activities.
• 7.3 Determine Budget—The process of aggregating the estimated costs
of individual activities or work packages to establish an authorized cost
baseline.
• 7.4 Control Costs—The process of monitoring the status of the project
to update the project costs and managing changes to the cost baseline.
7.1 Plan Cost Management
• Plan Cost Management is the process that establishes the policies,
procedures, and documentation for planning, managing, expending,
and controlling project costs.
• The key benefit of this process is that it provides guidance and
direction on how the project costs will be managed throughout the
project
7.2 Estimate Costs
• Estimate Costs is the process of developing an approximation of the
monetary resources needed to complete project activities.
• The key benefit of this process is that it determines the amount of
cost required to complete project work.
7.2.1 Estimate Costs: Inputs
• 7.2.1.3 Scope Baseline
The scope baseline consists of three key components, each playing a vital role in project management:
• Project Scope Statement: The project scope statement outlines the product description, acceptance
criteria, key deliverables, boundaries, assumptions, and constraints of the project. It serves as a guide
to ensure that all stakeholders have a clear understanding of what the project entails and what is
excluded. It helps in managing expectations, setting the foundation for decision-making, and
identifying potential risks or limitations such as budget constraints or resource availability.
• Work Breakdown Structure (WBS): The WBS is a hierarchical decomposition of the project into smaller,
manageable components and deliverables. It organizes the work into sections, enabling better
planning, assignment of responsibilities, and tracking progress. It ensures that no critical deliverables
are overlooked and provides a framework for cost estimation, resource allocation, and scheduling.
• WBS Dictionary: The WBS dictionary provides detailed information about each component in the WBS,
including descriptions, deliverables, work requirements, and other relevant details. It adds clarity and
precision to the WBS by defining each component's scope and deliverables, reducing
misunderstandings and ensuring alignment among team members and stakeholders.
7.3 Determine Budget
• Determine Budget is the process of aggregating the estimated costs of
individual activities or work packages to establish an authorized cost
baseline.
• The key benefit of this process is that it determines the cost baseline
against which project performance can be monitored and controlled.
7.3.1 Determine Budget: Inputs
• 7.3.1.1 Cost Management Plan: The cost management plan describes how the project costs
will be managed and controlled.
• 7.3.1.2 Scope Baseline
• Project scope statement. Formal limitations by period for the expenditure of project funds
can be mandated by the organization, by agreement , or by other entities such as
government agencies. These funding constraints are reflected in the project scope statement.
• Work breakdown structure. The WBS provides the relationships among all the project
deliverables and their various components.
• WBS dictionary. The WBS dictionary and related detailed statements of work provide an
identification of the deliverables and a description of the work in each WBS component
required to produce each deliverable.
• 7.3.1.3 Activity Cost Estimates: Cost estimates for each activity within a work package are
aggregated to obtain a cost estimate for each work package.
• 7.3.1.4 Basis of Estimates: Supporting detail for cost estimates contained in the basis for estimates
should specify any basic assumptions dealing with the inclusion or exclusion of indirect or other
costs in the project budget.
• 7.3.1.5 Project Schedule: The project schedule includes planned start and finish dates for the
project’s activities, milestones, work packages, and control accounts. This information can be used
to aggregate costs to the calendar periods in which the costs are planned to be incurred.
• 7.3.1.6 Resource Calendars: Resource calendars provide information on which resources are
assigned to the project and when they are assigned. This information can be used to indicate
resource costs over the duration of the project.
• 7.3.1.7 Risk Register: The risk register should be reviewed to consider how to aggregate the risk
response costs.
• 7.3.1.8 Agreements: Applicable agreement information and costs relating to products, services, or
results that have been or will be purchased are included when determining the budget.
• 7.3.1.9 Organizational Process Assets: The organizational process assets that influence the
Determine Budget process include, but are not limited to:
• Existing formal and informal cost budgeting-related policies, procedures, and guidelines;
• Cost budgeting tools; and
• Reporting methods.
7.4 Control Costs
• Control Costs is the process of monitoring the status of the project to update
the project costs and managing changes to the cost baseline.
• The key benefit of this process is that it provides the means to recognize
variance from the plan in order to take corrective action and minimize risk.
7.4.1 Control Costs: Inputs
• 7.4.1.1 Project Management Plan: The project management plan
contains the following information that is used to control cost:
• Cost baseline. The cost baseline is compared with actual results to
determine if a change, corrective action, or preventive action is
necessary.
• Cost management plan. The cost management plan describes how
the project costs will be managed and controlled.
• 7.4.1.2 Project Funding Requirements: The project funding
requirements include projected expenditures plus anticipated
liabilities.
• 7.4.1.3 Work Performance Data: Work performance data includes
information about project progress, such as which activities have
started, their progress, and which deliverables have finished.
Information also includes costs that have been authorized and
incurred.
• 7.4.1.4 Organizational Process Assets: The organizational process
assets that can influence the Control Costs process include, but are not
limited to:
• Existing formal and informal cost control-related policies, procedures,
and guidelines;
• Cost control tools; and
• Monitoring and reporting methods to be used.
7.4.2 Control Costs: Tools and
Techniques
• Earned Value Management (EVM) is a project performance measurement methodology
that integrates scope, schedule, and resource metrics to assess project progress and
performance comprehensively. It uses a performance baseline—comprising the scope
baseline, cost baseline, and schedule baseline—to track and evaluate project execution
against planned objectives.

• Key Dimensions of EVM:

• Planned Value (PV): The authorized budget assigned to scheduled work, representing the
expected budget for work to be completed at a given point in time.
• Earned Value (EV): The value of work actually completed, measured in terms of the budget
authorized for that work. It helps in calculating project completion percentages.
• Actual Cost (AC): The total cost incurred for completed work during a specific period. It
includes all expenditures made to achieve the earned value.
Significance in Project Management:
• Performance Assessment: EVM provides a quantitative measure of project
performance by comparing planned work (PV) with completed work (EV) and
the actual costs incurred (AC).
• Early Warning System: By identifying deviations from the baseline, EVM
highlights potential risks early, enabling timely corrective actions.
• Integrated Perspective: EVM combines scope, schedule, and cost into a
unified framework, offering a holistic view of project performance.
• Objective Decision-Making: It supports data-driven decisions by providing
accurate metrics for evaluating project status and forecasting future trends.
• Forecasting: EVM helps predict the total cost and time required to complete a
project based on current performance trends.