PMPGuru

Project Cost Management

Guruttam Creative Assets

Sample illustration.

Cost of the project

'How a project efficiently organizes or employ cost on resources within expected budget.'-Guruttam. Resources employed to deliver scope of work bear a cost. These cost are mostly fixed, variable, direct or indirect cost. It is important to analyse and identify cost items including those that require significant finance or investment. When sufficient time is not available for identifying such cost, standard guidelines and policies are referred to arrive at a budget. Successful completion in the expected budget depends on at the least following factors -
+) Estimation accuracy
+) Basis of estimates
+) Allocation
+) Reserves
+) Continuous reviews

Estimation, budgeting and allocation of cost may be constrained or influenced during planning by project mandates, resource constraints, market demand, bids, organizational practices, life-cycle analysis (LCA), cost-benefit analysis, risks reserves etc. During work in progress, as a good practice, consistent application of standard or custom tools for continuous reviews - measures and controls enabling better economical benefits or returns.

Project cost may be additionally managed by
+) project cost drivers
+) work package cost
+) cost-benefit analysis
+) e.g. NPV, IRR, ROI, Make-Buy analysis
+) estimates model, techniques etc
+) resource availability, skills and resourcefulness
+) reviews - EVM, CPI, variance analysis
+) similar project experiences
+) customer bids or market influences or demand

Project Cost Management Tips

Project cost estimation examples
• Consensus
• Engineered
• Discounted

Some of commonly used tools are
• Quantity estimates
• NPV, IRR, Depreciation, ROI
• Options analysis
• Life cycle analysis
• Reserves (Contingency, Emergency)
• Planning and revision controls
• EVM, CPI

Project Cost Formats

• Cost breakdown structure

Question and Answer

1. Capital budgeting appraisal method example is
• Net present value(NPV)
• Fixed and variable cost
• Direct and indirect cost
• Buffer analysis

2. When using earned value management tool, cost performance index(CPI) equal to 1 indicate
• Spending is more than budgeted
• Spending is less than budgeted
• Performance expected as budgeted
• Performance cannot be commented

Answer
1. Net present value(NPV)
2. Performance expected as budgeted