PMP Certification: Project Cost Management 101

Note if you are taking the PMP® exam from 26 March 2018 onwards: click here to read the updated PMP® study material based on PMBOK® Guide 6th Edition.

Cheers, Stefania

Project Cost Management is the fourth knowledge area of project management.

It starts with a process of planning that produces a cost management plan. Then there is an iterative process that develops and updates the cost estimates and cost baseline. After these have been produced, a monitoring and controlling process is used to measure project performance and to manage any change requests to the project scope, schedule, and costs.

Based on chapter 7 of PMBOK® Guide 5th Edition, here you will find:

  • project management graphic of Project Cost Management, a quick reference guide to its definition and processes
  • Project Cost Management WHATs, WHYs, WHENs, and HOWs — by Project Cost Management processes

Read on!

Project Cost Management 101

by Project Management Process Group

1. Plan Cost Management

  • WHAT Plan Cost Management Is. A project manager uses the Plan Cost Management process to create the cost management plan.
  • WHY Plan Cost Management Is Important. The Plan Cost Management process is where a project manager figures out all the work necessary to make sure the project stays within the estimated budget.
  • WHEN Plan Cost Management Is Executed. The Plan Cost Management process is performed after the scope and schedule activities of the Project Scope Management and Project Time Management knowledge areas. Moreover, the inputs, tools, and techniques for the Plan Cost Management process are the very same inputs, tools, and technique for the Plan Schedule Management process. They differ only for the output.
  • HOW Plan Cost Management Operates.
InputsTools and techniquesOutputs
  1. Project management plan
  2. Project charter
  3. Enterprise environmental factors
  4. Organizational process assets
  1. Expert judgment
  2. Analytical techniques
  3. Meetings
  1. Cost management plan

Source: PMBOK® Guide, 5th ed., Chapter 7, section 7.1, p. 195.

2. Estimate Costs

  • WHAT Estimate Costs Is. The Estimate Costs process develops an approximation of costs associated with each of the resources (human and material) required for all schedule activities of the project.
  • WHY Estimate Costs Is Important. A project manager estimates how much everything will cost on her/his project using the Estimate Costs process and these estimates will be combined into a spending plan in the following Determine Budget process.
  • WHEN Estimate Costs Is Executed. The Estimate Costs process is a highly iterative process that is repeated throughout the life of the project and each time it is done the activity cost is refined.
  • HOW Estimate Costs Operates.
InputsTools and techniquesOutputs
  1. Cost management plan
  2. Human resource management plan
  3. Scope baseline
  4. Project schedule
  5. Risk register
  6. Enterprise environmental factors
  7. Organizational process assets
  1. Expert judgment
  2. Analogous estimating
  3. Parametric estimating
  4. Bottom-up estimating
  5. Three-point estimating
  6. Reserve analysis
  7. Cost of quality
  8. Project management software
  9. Vendor bid analysis
  10. Group decision-making techniques
  1. Activity cost estimates
  2. Basis of estimates
  3. Project documents updates

Source: PMBOK® Guide, 5th ed., Chapter 7, section 7.2, p. 200.

3. Determine Budget

  • WHAT Determine Budget Is. The Determine Budget process aggregates the individual activity cost estimates into a total project cost. Then, it applies the project schedule to establish the costs timing. The resulting cost baseline is used to measure the performance of the project throughout the remaining process groups.
  • WHY Determine Budget Is Important. The cost baseline, output of the Determine Budget process, reports a detailed budget that shows costs and timelines for each work package or activity.
  • WHEN Determine Budget Is Executed. Project managers must complete the other Planning processes—such as the Create WBS, Define Activities, Estimate Activity Durations, and Estimate Activity Resources—before working on Determine Budget because some of their outputs become the inputs to this process. On the other hand, they can perform the Estimate Costs and Determine Budget processes at the same time.
  • HOW Determine Budget Operates.
InputsTools and techniquesOutputs
  1. Cost management plan
  2. Scope baseline
  3. Activity cost estimates
  4. Basis of estimates
  5. Project schedule
  6. Resource calendars
  7. Risk register
  8. Agreements
  9. Organizational process assets
  1. Cost aggregation
  2. Reserve analysis
  3. Expert judgment
  4. Historical relationships
  5. Funding limit reconciliation
  1. Cost baseline
  2. Project funding requirements
  3. Project documents updates

Source: PMBOK® Guide, 5th ed., Chapter 7, section 7.3, p. 208.

4. Control Costs

  • What Control Costs Is. The Control Costs process monitors the project budget and manages variations to the cost baseline included in the project plan.
  • Why Control Costs Is Important. The Control Cost process gives a project manager the tools and techniques to measure the performance of the project at a give point in time and to forecast the future performance of the project.
  • When Control Costs Is Executed. A project manager performs Control Costs process regularly throughout the project. Its iterative nature shows up especially when costs start to increase.
  • How Control Costs Operates.
InputsTools and techniquesOutputs
  1. Project management plan
  2. Project funding requirements
  3. Work performance data
  4. Organizational process assets
  1. Earned value management
  2. Forecasting
  3. To-complete performance index (TCPI)
  4. Performance reviews
  5. Project management software
  6. Reserve analysis
  1. Work performance information
  2. Cost forecasts
  3. Change requests
  4. Project management plan updates
  5. Project documents updates
  6. Organizational process assets updates

Source: PMBOK® Guide, 5th ed., Chapter 7, section 7.4, p. 215.

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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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