Project Cost Management Knowledge Area | Chapter 7

The Project Cost Management knowledge area is concerned with estimating, budgeting, forecasting, and controlling the cost of the project.

The project management cost processes typically follow the scope and schedule development processes.

Project Cost Management Processes

The three processes in the project cost management knowledge area are:

Though cost estimating and budget development are distinct processes, on many projects they are done concurrently, sometimes at the same time as resource needs for the scheduled activities are determined (Estimate Activity Resources, 6.3).

There is no definite project role with explicit responsibilities for cost processes because it largely depends on the type of project and the organization.

Some projects may rely on professional estimators for all or part of the cost processes, and some organizations may have the analysis of project financial performance handled by people outside the project.

But for our PMP examination, we should assume the project manager has the ultimate responsibilities for the cost processes.

Project cost decisions can’t be made in a silo. Costs have impacts to other project factors, such as scope, quality, risks, and total cost of ownership.​

For example, a decision to reduce project costs by using a component that costs less but requires more frequent maintenance over the life of the product increases the customer’s costs.

Project constraints also influence cost decisions.

Though the most obvious constraint is a limited budget, other constraints only indirectly related to project cost usually have financial repercussions, including staffing and scheduling constraints.

Cost Management Plan

Each knowledge area has at least one subsidiary plan focusing on a specific subject as part of the overall project management plan.

Preplanning is the purpose of these components, and these plans map out the specific requirements for the deliverables and project management processes that will take place in that knowledge area.

This preplanning may sound like a lot of work, but we can think of these subsidiary plans as being the scope statements for the knowledge area because they describe the who, what, where, why, and how of the project management work that will be performed for that section’s subject matter.

The cost management plan is a part of the project management plan, and it provides guidance for all the cost processes.

It establishes how project costs will be planned for, estimated, organized, reported on, forecasted, and managed.

It addresses topics that cover:

  • What types of indirect costs, if any, will be posted against the project.
  • Units of currency to be used.
  • Precision level/acceptable rounding for costs.
  • Currency conversion issues.
  • Acceptable thresholds for cost variances.
  • The general ledger or control accounts for expenses and costs.
  • The performance measurement formulas that will be used.
  • At what points in the project performance measurements will be made.
  • How and when costs incurred should be posted against the project budget.

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