There are generally four steps that are used in the project cost management process. Dec 17, 2019 plan cost management is the process of establishing policies, procedures, and documentation for planning, managing, expanding and controlling project costs. The process of cost budgeting defines time phased cost estimates for the project. Large construction projects are inherently complex and dynamic. Cost management process project management templates. Cost management plan a cost management plan is a document that describes how the organization will manage cost variances on the project based on estimation, but acted on through monitoring and controlling labor costs are a large percentage of total project cost time money. The work breakdown structure wbs is the basis for the cost management plan because the costs are totaled or rolled up from the costs for the individual work packages in the wbs. Project cost management pmp what is cost management. Cost management is a major basis for the project outcome because it assesses success rate of a project on the cost performance part. Projected costs are calculated during the planning phase of a project and must be approved before work begins. Page iv wsdot cost estimating manual for projects m 3034. Managing the cost of a project is perhaps the primary function of most project managers. In simple words, a cost management plan is the outline of the projects estimation, allocation and control of costs for the required resources to complete all project activities. Many projects start with good ideas, huge investments and great efforts.
The first task is to set the budget based on cost estimates and the second is to manage the costs so that they remain within the budget that has been set. The purpose of cost management is to ensure project costs are planned based on project need, tracked, changed according to procedure and reported on a regular basis. The following cost management activities are documented in this plan. This includes coordinating tasks, resources, stakeholders, and any other project elements, in addition to managing conflicts between different aspects of a project, making tradeoffs between competing requests and evaluating resources. Using software to assist in cost management spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control many companies use more sophisticated and centralized financial applications software for cost information project management software has many cost related features 31. Among other things, a cost management plan identifies the individual or group responsible. It allows a business to predict coming expenses in order to reduce the chances of it going over budget. Project cost management for project managers based on pmbok by dr. Cost control is the part of project management such that cost management processes involved in planning, estimating, budgeting, and controlling costs.
Today, businesses and government agencies alike are demanding greater visibility into project and program performance. T d jainendrakumar the cost management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. There are several activities in a project, several project resources work on project activities and several materials, tool and equipment are used to complete the project scope. Please refer to pmbok guide fourth edition, page 167, figure 71. Using software to assist in cost management spreadsheets are a common tool for resource planning, cost estimating, cost budgeting, and cost control many companies use more sophisticated and centralized financial applications software for cost information project management software has many costrelated features 31. Project cost management for project managers based on pmbok. Cost management plan template free management ebooks.
A major contribution to unsuccessful projects is the lack of. Managing the project budget free ebook in pdf format. An effective cost management plan ensures that the project is completed on budget and according to its planned scope. To manage your project costs effectively, there are three key processes you need to be able to perform. May 27, 2016 hence, good project management requires a firm grasp on the concepts and techniques in project budgeting and cost control. Cost management seven project management functions pt 2. Project integration management is the coordination of all elements of a project. This project cost management template is free for you to copy and use on your project. You can check out the complete range of project management pdf ebooks free from this website. This section will also cover specific project management process of risk. Though the cost management plan is a required part of the project management plan, unlike time and scope management, it is not listed as a part of the formally defined cost management process. Estimate costs determine budget control costs processes and related tools and techniques are usually selected when defining the project life cycle and are documented in cost management plan.
Dec 04, 2019 cost management is the process by which one plans and manages the budget of a business or project. Project cost management includes all those processes necessary to ensure that the project is. Pdf challenges of cost management in complex projects. Project cost management preface this ebook describes the process of cost management in projects. A cost management process helps you control expenses within an organization. Cost management is a really important one among all the project management knowledge areas. Quantify risk factors and incorporate them as cost 4.
Construction contingency a standardized markup applied to the construction cost of a project that accounts for uncertainties in quantities, unit costs, and minor risk events that typically take place during construction. Because you need to purchase tools, materials, and the company must pay salaries of. Certainly concerns over cost and time management have produced the major techniques we think of as being unique to project management. Create a project cost and budget development system. Cost management overview project management professional pmp. Paper presented at pmi global congress 2012north america, vancouver, british columbia, canada. This section of the project management plan specifies the project management processes for the project. Many would argue that cost management, when integrated with time management is, in fact the essence of project management. Please read chapter 7 from project management institute, a guide to the project management body of knowledge, pmbok guide fourth edition, project management institute, inc.
The tools and techniques used for estimate costs are expert judgment. In the case of a project, it helps the project manager estimate what the project will cost and set in place controls by which they can reduce the chance of the project going over budget. There will be several project resources in a project and several different types of materials will be needed, there might be necessary tool and equipment as well. Apr 25, 2017 the cost management plan guides these four processes. Management reserve cost and schedule are important project management tools amounts based on statistical analyses, past experiences typically in the 1030% range reserves should be planned and validated with the overall project plan the project manager owns management reserve and unallocated budgetschedule release of management reserve. Thankfully, the project management body of knowledge pmbok gives us a strong foundation in this area.
Train project managers in systematic project management 5. This process will help you identify, monitor and control costs, at each phase in the project. It includes activities and tools to help you complete your project within the approved budget. Created during the project planning phase, the cost management plan is a document that defines how you manage, control, and communicate a projects costs in order to complete the project on budget. Cost control is the part of project management such that cost management processes involved in planning, estimating, budgeting, and controlling costs so that the budget can be completed within the. To deliver your project under budget, it is essential that you implement a project cost management process. Cost estimating involves defining cost estimates for tasks. The develop project management plan in integration management involves the creation of the cost management plan. A talented and experienced project manager will be able to analyze the goals of an upcoming project and work through a series of steps to make sure that project is delivered in as cost effective a manner as possible. Hence, good project management requires a firm grasp on the concepts and techniques in project budgeting and cost control.
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