Chapter 7

Project Cost Management

As we know Cost is a resource sacrificed or foregone to achieve a specific objective or something given up in exchange. There are usually measured in monetary units like dollars, Malaysia Ringgit and many more. There are 3 processes involve in cost management; cost estimating, cost budgeting and cost control. All this processes are interrelated among each other. Some basic principle of cost management like profit, life cycle costing, cash flow analysis, tangible or intangible costs or benefit, direct and indirect costs sunk cost are important to know before handling cost.

First and foremost, there are three types of cost estimating; Rough of order, budgetary and definite. A cost management plan is a document that describes how the organization will manage cost variance on the project. Some basic tools and techniques for cost estimates; Analogous or top-down estimates, bottom-up estimates and parametric modeling. Furthermore, typical problem with IT cost estimates;

# Estimates are done too quickly
— Lack of estimating experience
— Human beings are biased toward underestimation
— Management desires accuracy

Next, cost budgeting involves allocating the project cost estimate to individual work items over time and the goal is to produce a cost baseline. Last but not least, Project cost control includes:
— Monitoring cost performance
— Ensuring that only appropriate project changes are included in a revised cost baseline
— Informing project stakeholders of authorized changes to the project that will affect costs

EVM is a project performance measurement technique that integrates scope, time, and cost data. Some terms in EVM are planned value (PV), Actual cost (AC), earned value (EV).