PMP Certification: Project Cost Management Terms

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 key terms
  • Project Cost Management key terms — by Project Cost Management processes

Read on!

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

  • Rough Order of Magnitude Estimation. Estimating with very little accuracy at the beginning of a project and then refining the estimate over time. It’s got a range of –25% to +75%.
  • Vendor Bid Analysis. The technique that gathers information on bids from vendors to help a project manager figure out cost estimates.
  • Cost of Quality. The total cost to produce the product or service of the project according to the quality standards.
  • Activity Cost Estimates. The cost estimates for all activities in the activity list of a project.
  • Basis of Estimates. The backup information to support how the estimates were developed.

3. Determine Budget

  • Cost Aggregation. The technique of summing lower level cost estimates for each work package to arrive at a total cost estimate for higher-level deliverables.
  • Funding Limit Reconciliation. The project must reconcile funding requirements with any funding limitation or constraint originating from the company fiscal calendar.
  • Cost Baseline. The total expected cost for the project. It includes the activity costs plus contingency reserves, the work package costs plus contingency reserves, and the management reserves for the cost baseline. It is time-phased and approved by the project sponsor.
  • Project Funding Requirements. The requirements for funding over the course of the project, derived from the cost baseline.

4. Control Costs

  • Earned Value Management. A management methodology for integrating scope, schedule and resources and for objectively measuring project performance and progress.
  • 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.
  • 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.

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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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