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A Quick Guide to Project Cost Management

Knowledge Areas Covered on the PMP® Certification Exam

Project Cost Management is the process of planning and controlling the budget of the project.

Cost Management is an essential component in project planning. Learn more about how are classes can help you better manage your projects. 

A Quick Guide to Project Cost Management

While each of the ten knowledge areas plays an important role in ensuring the success of a project, the area of project management is particularly helpful for project managers because it helps to establish a baseline against which project costs can be compared. Not only does project cost management play an important role in making sure that projects do not go over cost, but it also helps to avoid financial difficulties because of a problem. It is critical that anyone who is interested in project management understands some of the important details about project cost management.

What the Project Cost Management Process Involves

While cost management is focused on planning and controlling a project's budget, it includes a variety of activities to make sure that a project is completed within time. There are several steps that experienced project managers use to cost manage projects, which include the following:

  • Cost management begins by estimating all the costs that are involved with a project. Each activity is analyzed to determine how long the activity will take well as the resources associated with them. Estimates vary from a Rough Order of Magnitude to a Definitive estimate. Historical information can also be examined to assist in estimating the costs.
  • After these figures are determined, a project manager begins to develop a project budget as a well as a list of actions that can keep a project on track. The exact method that a project manager uses for a project depends on the amount of information that is available about a project. While some project managers use the cost of historical projects, other project managers use mathematical models to determine what figures are required. If certain costs are unknown while creating a projected budget, project managers can allocate funds with the stakeholders approval to deal with those unknowns when they arise.
  • Project managers continuously track costs associated with a project throughout its execution to make sure that the costs remain within the projected goal. This process, which is referred to as "cost control" involves recording any changes to the cost baseline. Once actual cost details become available, this process also examines what differences in project spending led to these results. 

 Advice on Effectively Managing the Cost of Projects

While project cost management is particularly challenging, project managers have learned numerous pieces of advice to make sure that project cost management is performed effectively. Some of the strategies that ensure effective project cost management include the following:

  • Accounting for inflation while establishing an accurate budget. Prices for many resources fluctuate over time, and it is a wise idea to capture this detail in financial projects. While it can be particularly challenging to determine the value of some resources in the future, doing so helps to provide a better idea of how much projects are likely to end up costing.
  • There are several “Acts of God” or unforeseen circumstances that can occur and significantly influence a budget. As a result, it is a wise idea to consider these potential events when creating a budget.
  • It is a wise idea to prepare a budget for events like lawsuits and penalties that could end up arising during a project’s execution. By preparing a budget for these events early, companies can avoid having to pay a large unexpected amount.
  • It is a wise idea to prepare a  budget for events like lawsuits and penalties that could end up arising during a project’s execution. By preparing a budget for these events early, companies can avoid having to pay a large unexpected amount.
  • It is critical for project managers to stay up to date with the most current information about a project’s costs. Fortunately, there are many applications that provide project managers with these details. Using outdated information about a project’s costs can result in much less accurate future projections.
  • Project managers who notice discrepancies between a budget and actual costs must act immediately to take control of these situations. By waiting, there is a substantial risk that companies can end up facing much larger costs.
  • Some people believe that some projects or companies are so small that project management is not needed. It is a wise idea, however, to manage the costs associated with a project regardless of its size.

Attend One of Our Project Management Classes Today

Project cost management is a particularly complicated yet vital part of making sure that a project has successful results. As a result, it is critical for experienced project managers to understand some of the vital details about this area of project management works. If you are looking to attend one of our project management boot camps, we invite you to review our class listings today. Each of our classes is taught in a state of the art facility by an industry respected teacher.