7
PROJECT COST MANAGEMENT
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Project Cost Management includes the processes required to ensure that the project
is completed within the approved budget.
Figure 7-1
provides an overview of the following major processes:
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Resource Planning
— determining what resources (people, equipment, materials)
and what quantities of each should be used to perform project activities. |
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Cost Estimating
— developing an approximation (estimate) of the costs of
the resources needed to complete project activities. |
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Cost Budgeting
— allocating the overall cost estimate to individual work activities. |
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Cost Control
— controlling changes to the project budget. |
These processes interact with each other and with the processes in the other
knowledge areas as well. Each process may involve effort from one or more individuals
or groups of individuals, based on the needs of the project. Each process
generally occurs at least once in every project phase.
Although the processes are presented here as discrete elements with well-defined
interfaces,
in practice they may overlap and interact in ways not detailed here. Process
interactions are discussed in detail in
Chapter 3.
Project cost management is primarily concerned with the cost of the resources
needed to complete project activities. However, project cost management should
also consider the effect of project decisions on the cost of using the project´s product.
For example, limiting the number of design reviews may reduce the cost of the project
at the expense of an increase in the customer’s operating costs. This broader
view of project cost management is often called life-cycle costing. Life-cycle costing
together with Value Engineering techniques are used to reduce cost and time, improve quality
and performance, and optimize the decision-making.
In many application areas, predicting and analyzing the prospective financial
performance
of the project´s product is done outside the project. In others (e.g., capital
facilities projects), project cost management also includes this work. When such
predictions and analyses are included, project cost management will include additional
processes and numerous general management techniques such as return on
investment, discounted cash flow, payback analysis, and others.
Project cost management should consider the information needs of the project
stakeholders—different stakeholders may measure project costs in different ways and
at different times. For example, the cost of a procurement item may be measured
when committed, ordered, delivered, incurred, or recorded for accounting purposes.
When project costs are used as a component of a reward and recognition system
(discussed in
Section 9.3.2.3), controllable and
uncontrollable costs should be estimated and budgeted separately to ensure that rewards
reflect actual performance.
On some projects, especially smaller ones, resource planning, cost estimating, and cost
budgeting are so tightly linked that they are viewed as a single process (e.g., they may be
performed by a single individual over a relatively short period of time). They are presented
here as distinct processes because the tools and techniques for each are different. The ability
to influence cost is greatest at the early stages of the project, and this is why early scope
definition is critical, as well as trorough requirements identification and execution of a
sound plan.
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