Cost Management Drives Project Success

For an effective project plan, it is important to address the parameters of “activity time” and “activity logic” equally. Rory Burke, found this logical relationship essential to model the effect schedule variance would have down stream in the project.


Project Cost Management:

It is defined as the “Knowledge Area” that includes the processes required to ensure that the approved budget is maintained until the completion of the project.

Processes in the Project Cost Management:

  • Cost Estimation: Developing an approximate of the costs of resources that would be utilized to complete the project.
  • Cost Budgeting: The overall cost estimate is allocated to individual work items. This would establish a baseline for measuring performance.
  • Cost Control: Part of the Monitoring and Control process group, Cost Control is primarily concerned with cost variance. The process ensures that the cost stays on track and any change is detected as soon as it occurs. Cost Control is typically revisited weekly, during implementation because the project costs peaks during this time and monthly, when in the planning phase. To determine the performance of the project costs, the project managers utilize the Earned Value Management (EVM), which determines how much value has been put in the project. This would help the project manager in reporting the progress of the project in relation to its costs and schedule.


Vocabulary used in Cost Management:

Cost management in project management is inclusive of the processes that are required to ensure the project is completed within the fixed budget. Following are some vocabularies that are used by the IT project managers.

  • Profits: Revenues minus the expenses.
  • Life Cycle Costing: This considers the total costs of ownership, or the development plus the support costs.
  • Cash Flow analysis: This determines the estimated annual costs and benefits in respect of the project and the resulting annual cash flow.
  • Tangible Costs or Benefits: This is the costs and benefits that organizations can easily measure in dollars.
  • Intangible Costs or Benefits: These are the costs, which are difficult to calculate and measure in monetary terms.
  • Direct Costs: These costs are related to the production of the products and services of the project.
  • Indirect costs (Overheads): The costs are not directly related to products or services of the project but indirectly related to performing the project.

Cost Management Plan:

  • A document that describes on how the organization will manage the cost variances of the project.
  • Out of the total project costs, a substantial percentage is labor costs. It is important for the project managers to develop and track the estimates for labor.

Cost Budgeting: Cost Baseline:

  • The Cost Budgeting would involve allocation of projects cost estimate to individual work items over time.
  • The Work Breakdown Structure (WBS) is required input in the cost budgeting process, as it would define the work items.
  • The important goal is to produce cost baseline: The time-phased budget, which the project manager uses to measure and monitor the cost performance Cost Control

The project cost control includes the following:

  • Monitoring of the cost performance
  • It should be ensured that only appropriate project changes be included in the revised cost baseline.
  • The project stakeholders are informed about the authorized changes to the project that would affect costs.

Utilizing software to assist in Cost Management:

  • Spreadsheets are a common tool and are used for resource planning, cost budgeting, cost estimation and cost control.
  • There are companies that use sophisticated and centralized financial applications software for cost information.
  • The Project Management software includes cost-related features for example the enterprise PM software.

The late Stephen Covey said, “All things are created twice; first mentally; then physically. The key to creativity is to begin with the end in mind, with a vision and a blue print of the desired result.” Inappropriate IT Project management can be fraught with failures and therefore it is important for the project manager to identify the potential pitfalls and offer solutions that overcome even the most perilous of challenges.

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Soumit Roychowdhury

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