PMP Certification: Project Cost Management Tips (based on PMBOK® Guide, 6th Edition)


Project Cost Management Tips

by Project Management Process Group

1. Plan Cost Management


  • Cost Vs. Budget. On the PMP exam, the terms cost and budget have distinct meanings. Cost designates the actual costs of each activity or work package; budget refers to costs over time.

2. Estimate Costs


  • Accuracy of Estimates. Keeping in mind that the more the project progresses, the more precise an activity’s estimate, the range of uncertainty inherent in any estimate typically varies as follow:
    • Order of Magnitude Estimate. -50% to +100%
    • Rough Order of Magnitude Estimate. -25% to +75%
    • Conceptual Estimate. -30% to +50%
    • Preliminary Estimate. -20% to +30%
    • Definitive Estimate. -15% to +20%
    • Control Estimate. -10% to +15%

pmp 2018 project cost management tips pmbok guide 6th edition tipsographic main

Project Cost Management Tips

by Project Management Process Group

1. Plan Cost Management


  • Cost Vs. Budget. On the PMP exam, the terms cost and budget have distinct meanings. Cost designates the actual costs of each activity or work package; budget refers to costs over time.

2. Estimate Costs


  • Accuracy of Estimates. Keeping in mind that the more the project progresses, the more precise an activity’s estimate, the range of uncertainty inherent in any estimate typically varies as follow:
    • Order of Magnitude Estimate. -50% to +100%
    • Rough Order of Magnitude Estimate. -25% to +75%
    • Conceptual Estimate. -30% to +50%
    • Preliminary Estimate. -20% to +30%
    • Definitive Estimate. -15% to +20%
    • Control Estimate. -10% to +15%
  • pmp exam 2018 study guide free online preparation tipsographicType of Costs. A project manager may estimate the following type of costs for each activity and work packages defined for the project:
    • Fixed costs. Costs that do not change based on volume (e.g., office rent, independent from employees).
    • Variable costs. Costs that adjust based on volume (e.g., office chairs, dependent on employees).
    • Direct costs. Costs directly attributable to project (e.g., labor).
    • Indirect costs. Costs not directly attributable to project (e.g., legal department).
    • Sunk costs. Costs already incurred on the project that cannot be recovered if the project was to stop.

3. Determine Budget


  • Cost Baseline Vs. Funding Requirements. At the end of the project, the difference between cost baseline and funding requirements is the management reserve. Expressed as Funding requirements = cost baseline + management reserve.
  • Funding Release. Usually, the project’s funds are released incrementally over the life of the project; monthly, quarterly, or annually but not all at once.
  • Large Projects. Large projects might have more than one cost baseline. For PMP example, you might be required to track human resources costs, material costs, and contractor costs separately.

4.Control Costs


Click here for a detailed analysis of each project management process group and knowledge area.

SOURCES: Project Management Institute (2017). A Guide to the Project Management Body of Knowledge (PMBOK® Guide). 6th ed. Newtown Square: Project Management Institute.

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Hi, I am Stefania, hearth and keyboard behind Tipsographic, a free online resource for everybody interested in project management and agile. I specialize in project management tips, tools, and tricks. When I'm not writing, you can find me road cycling around Tuscany or spending time with friends and family.

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