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


Project Cost Management Terms

by Project Management Process Group

1. Plan Cost Management


  • Cost Management Plan. A subsidiary of the project management plan that establishes the policies and procedures to plan, execute, and control project costs.
  • Life Cycle Costing. A technique which takes account of the total cost of ownership during the whole economic life of a product. It includes initial costs, operating costs, and disposal costs.
  • Value Engineering. A project manager’s efforts to get more out of the project by any means available, for instance by decreasing costs or improving quality.

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

Project Cost Management Terms

by Project Management Process Group

1. Plan Cost Management


  • Cost Management Plan. A subsidiary of the project management plan that establishes the policies and procedures to plan, execute, and control project costs.
  • Life Cycle Costing. A technique which takes account of the total cost of ownership during the whole economic life of a product. It includes initial costs, operating costs, and disposal costs.
  • Value Engineering. A project manager’s efforts to get more out of the project by any means available, for instance by decreasing costs or improving quality.

2. Estimate Costs


  • Activity Cost Estimates. The cost estimates for all activities in the activity list of the project.
  • Basis of Estimates. The backup information to support how the estimates were developed.
  • Cost of Quality. The cost of ensuring quality, broken down into cost of conformance (prevention costs plus appraisal costs) and cost of non-conformance (internal failure costs plus external failure costs).
  • Rough Order of Magnitude Estimation. Estimating with very little accuracy at the beginning of the project and then refining the estimate over time. It ranges between –25% and +75%.
  • Vendor Bid Analysis. The technique that gathers information on bids from vendors to help a project manager determine cost estimates.

3. Determine Budget


  • pmp exam 2018 study guide free online prep tipsographicCost Aggregation. A technique for summing lower level cost estimates for each work package to arrive at a total cost estimate for higher-level deliverables.
  • Cost Baseline. A time-phased plan for when funds will be disbursed on a project, baseline against which  measuring project cost performance.  It includes activity costs plus contingency reserves, work package costs plus contingency reserves, and management reserves for cost baseline.
  • Funding Limit Reconciliation. A project must reconcile funding requirements with any funding limitation or constraint originating from the company’s fiscal calendar.
  • Project Funding Requirements. The requirements for funding over the course of the project, derived from the cost baseline.

4.Control Costs


  • Actual Cost (AC). The actual direct and indirect costs incurred in completing project work during a given period.
  • Budget at Completion (BAC). The original total project budget to complete all the work.
  • Earned Value Management. A management methodology for integrating scope, schedule and resources and for objectively measuring project performance and progress.
  • Cost Performance Index (CPI). A relative measure of project’s cost efficiency calculated by dividing earned value by actual cost.
  • Cost Variance (CV). A measure of variance between what was planned on spending and what is actually spent, expressed as earned value minus actual cost.
  • Estimate at Completion (EAC). The forecasted cost estimate of completing all of the project work, based on performance to date.
  • Forecasting. A technique that takes time and cost performance to date and uses this information to estimates the future conditions or future performance of the project based on what a project manager knows when the calculation is performed.
  • Planned Value (PV). The value of work that should have been completed on the project at a given point in the schedule.
  • To-Complete Performance Index (TCPI). The projected cost performance the remaining work of the project must achieve in order to meet the original budget or a new approved one.

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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