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