Project Cost Management
Project Cost Management is defined as the process of planning and controlling the project cost , budget effectively and efficiently. It defines what costs are required for each deliverable of the project. It includes various functions of Project management like estimation, job controls, field data collection, scheduling, accounting, design , Development , QA etc.
The cost of the project can be estimated from various process sources (Examples below)
- Creating Work Breakdown Structure (WBS)
- Develop Schedule
- Plan human resources
- Identifying risks
The inputs of cost management include,
- Project management plan
- Project charter
- Enterprise environmental factors
- Organizational process assets
While, the output of this is
- Cost Management Plan.
Creating estimation and costing for project is an extremely crucial part of any project management. Various things are taken in consideration while calculating budget for project like labor costs, necessary equipment acquisition, material costs, etc.
What is Project Cost Estimation?
Project Cost Estimation is defined as the process of approximating the total expenditure of the project. The accuracy of the cost estimation and budgeting in project management depends on the accuracy and details of the project scope, which is the scope baseline. The scope will also define any constraints like date, resources or budget. The risk register will help to calculate estimate types of costs, the expenses made behind the contingent action and the expenses made to cope with risks.
To estimate the cost of project you have to categorize various cost types into categories like
- Labor cost
- Equipment cost
- Cost of supplies
- Travel cost
- Training cost
- Overhead cost, etc.
Techniques used to estimate project cost
There are some techniques used to estimate a project cost like: Expert Judgement, Three-Point Estimation, Reserve Analysis and Cost of Quality.
However, to estimate project cost, formally there are few main methods (techniques) used as follows:
Analogous Estimating
This estimating technique is based on expert judgments and information based on similar previous projects. Where previously done similar project cost is considered with plus or minus of 20% for existing project.
Parametric estimating
Past data or record is used to estimate cost for the current project.
Bottom-up estimating
Once you have defined the scope of the project, it is the most reliable form of technique. In this technique, based on WBS, you estimate the cost for each resource or deliverables.
Likewise, there are other methods (techniques) which could be useful for estimating cost like PERT estimating, vendor bid analysis, etc.
Project Budget Planning
The main purpose of this activity is to allocate and authorize the monetary resources required to complete the project. The main output for determining the budget includes cost performance baseline. It not only specifies what cost will be incurred but also when costs will be incurred. The inputs for determining budget includes following Project management budgeting methods:
- Activity cost estimates
- Basis for estimates
- Scope baseline
- Project Schedule
- Resource calendars
- Contracts
- Organizational process assets
The output of this process is
- Cost performance baseline
- Project funding requirements
- Project document updates
The project budgeting is performed in parallel with the project scheduling process. It is highly dependent on three component –
- Cost estimation
- Task durations
- Allocated resources
During project budgeting and costing, project manager communicates with different people responsible for managing the work efforts as well as estimating project costs.
He will use various project prospects like work breakdown structure of the project, the cost estimates, historical data and records, resource information, and policies.
Without risk assessment, the budgeting process is not completed. Risk assessing process considers factors like time shortage, availability of resources, development team experience, the technology used, etc. The risk assessment can be an amount between 25 and 30 percent of the overall project cost.
Project Quality Management Plan
The quality management process group consists of three processes,
Plan Quality
Plan Quality process involves identifying which standard quality are relevant to the project and how to fulfill them. It also includes identifying quality metrics and standard measures for project processes, regulatory compliance requirements, product functionality, documentation, etc.
The inputs of the plan quality management includes
- Project management plan
- Stakeholder register
- Risk register
- Requirements documentation
- Enterprise environmental factors
- Organizational process assets
The output for the quality management is
- Quality management plan
- Process improvement plan
- Quality metrics
- Quality checklists
- Project documents updates
Quality Assurance
This stage includes mainly two activity, first analyzing project quality and improve project quality. It is a process of auditing the quality requirements and the results from quality control measurement to ensure that quality standard is maintained throughout the process. The input for this will be same as the output of plan quality management while the
The output of this process will be
- Change request
- Project management plan
- Project documents updates
- Organization process assets updates
Quality Control
This will be conducted to control quality throughout the project life cycle. It defines how the quality standard can comply with the defined quality standards. The output of Quality Assurance will be the input for Quality Control. While the output will
- Quality control measurements
- Validate changes
- Verified deliverables
- Work performance information
- Change request
- Project management plan
- Project documents updates
- Organizational process assets updates
Project Human Resource Management
HR management includes the process of organizing, managing and leading the project team. It is comprised of the people with allocated roles and responsibilities for completing the project. The HR management will deal with four processes.
Develop human resource plan
This stage defines the project roles and responsibilities, project organization charts and staff management plan
The input for this will
- Project management plan
- Activity resource requirements
- Enterprise environmental factors
- Organizational process assets
The output for this will be
- Human resource management plan
Acquire project team
This stage confirms the availability of the human resource and obtaining the team necessary to complete project activities. The input for this stage would be the output from the previous step. While the output of this stage would be
- Project staff assignments
- Resource calendars
- Project management plan updates
Develop project team
In this stage, the focus is improving the team efficiency, team member interaction and enhancing overall team and project performance. The input for this stage would be the output from the previous step. While the output for this stage would be
- Team performance assessments
- Enterprise environmental factors updates
Manage project team
This process includes tracking team member performance, resolving issues, providing feedback and managing a team to optimize project performance. The input for this stage would be the output from the previous step. While the output for this stage would be
- Change request
- Project management plan updates
- Project document updates
- Enterprise environmental factors updates
- Organizational process assets updates
Project Communication Management
Here, Project Communication does not mean interacting verbally with each other, but transmitting project related information effectively with the project team, stakeholder, project managers, etc. It should address risk actions and assessments, project plans, meeting management and actions, reviews and walk-throughs, etc.
This segment cover mainly five areas
Communicating with Stakeholders
It is the process of developing an approach to communicate with stakeholders efficiently and understanding their requirements. The input for this would be
- Project management plan
- Stakeholder register
- Enterprise environmental factors
- Organizational process assets
While the output for this will be
- Communication management plan
- Project documents updates
Manage Communications
It is the process of storing, distributing, collecting, and retrieving of project information in accordance with a communication plan. The input of this stage would be
- Enterprise environmental factors
- Organizational process assets
- Work performance reports
- Communication management plan
While the output would be
- Project communications
- Project management plan updates
- Project documents updates
- Organizational process assets updates
Control Communications
It is the process of controlling and monitoring communication throughout the entire project lifecycle. The input for this stage would be
- Project management plan
- Project communications
- Issue log
- Work performance data
- Organizational process assets
While the output of this stage would be
- Work performance information
- Change requests
- Project management plan updates
- Project document updates
- Organizational process updates
Summary
Cost management is the process of planning and controlling the project cost effectively. Cost budgeting in project management helps you to record and track the expenses made after the project.
To see that your project is completed in a given timeline and budget, we will see what risk factor needs to mitigate in next tutorial.
Project Cost Estimation and Budgeting is defined as the process of approximating the total expenditure of the project.