Project cost management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that a project can be completed within its approved budget. The four main processes are as follows:
Plan Cost Management – The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs.
Estimate Costs – The process of developing an approximation of the monetary resources needed to complete project activities.
Determine Budget – The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
Control Costs – The process of monitoring the status of the project to update the project costs and managing changes to the cost baseline.
Project cost management is primarily concerned with the cost of the resources needed to complete project activities. For example, in the IT Project Management Office, we often manage system implementation projects. More often than not, beyond the initial cost of a system, which is often pricey, the annual maintenance renewal costs are also pricey – especially over time – and must be considered when determining the true cost of the systems we implement. This also helps to determine whether or not a system is financially sustainable over time. If it is determined that a system is not financially sustainable, it is the duty of the project manager to inform the project’s sponsor of this and encourage him or her to reconsider moving forward with the project.
There are likely additional costs incurred, too, when implementing new systems that may include additional hardware and software, training, and/or consulting. Employing project cost management processes and integrating them with requirements and planning processes helps to ensure that the short term and long term costs are considered carefully, so projects are funded sufficiently.
Next week we’ll look at project human resource management.
Excerpts and definitions were taken from the following:
(2013) A guide to the project management body of knowledge (PMBOK guide) Fifth edition. Newtown Square, Pa.: Project Management Institute, Inc., pg. 193 and 195.