Managing project costs is a critical part of project management. As a project manager, you must ensure you can deliver the project within the allocated budget. This article will look at the overall process for managing a project’s cost.
The Cost of the Project
Before estimating the project cost, we need to develop the project schedule. The cost of the overall project is the sum of all its activities. All project managers know the importance of estimating and controlling costs in a project. When considering project management, we always consider delivering the project to scope, schedule, and budget. Therefore, we must manage project costs.
Project Cost Management
Project cost management is the knowledge area that contains all of the processes that allow the project manager to plan the budget, estimate the costs of activities, and manage and control the project budget. The project cost management knowledge area contains four processes across the planning, monitoring, and controlling process groups.
Plan Cost Management
The first process is plan cost management. Like all other knowledge areas and project management, we must first start with a plan. In this process, the project manager will create a cost management plan document. This document details the framework for how project costs will be planned and estimated and how we’ll control them throughout the project.
Estimate Project Costs
During the schedule planning process, the team must estimate project costs. They can do this in several ways. Perhaps they have done a similar project and can use historical information to project costs. They could consult with suppliers. They could also use several estimation techniques based on industry standards.
Develop the Project Budget
Now the project manager develops the project budget, taking all of the information determined in the cost-estimating process. Then, we establish a cost baseline, which will serve as the initial measurement from which all future project costs will be compared to. The budget should also include all the necessary funds to execute the project successfully.
Monitor and Control the Budget
Once the project budget is approved and the project progresses, the manager needs to monitor and control the budget continuously. They do this by comparing actuals to the baseline budget. During this process, the project manager also uses tools known as earned value management to track the budget and communicate directly with stakeholders. Earned value management allows us to measure project performance by combining cost, schedule, and scope measurements.
The project management process for managing cost is everything related to the project’s budget and costs. Controlling the budget is critical to a project’s success. Following the project cost management process, you can develop and estimate costs, develop the budget, and report project status through budget-based formulas and tools. This will ensure you can deliver the project on budget, time, and scope.