Cost Management

Definition Management of cost related activities achieved by collecting, analyzing, evaluating, and reporting cost information used for budgeting, estimating, forecasting, and monitoring costs.

Project cost management Project cost management includes the processes required to ensure that the project is completed within an approved budget.

Cost management processes Resource planning► The process of determining what physical resources and what quantities of each should be used to perform project activities. Cost estimating► The process of developing an estimate of the costs of the resources needed to complete project activities.

Cost management processes ►Cost budgeting The process of allocating the overall cost estimates to individual work items in order to establish a cost baseline for measuring project performance. ►Cost control The process of: Influencing the factors which create changes to the cost baseline to ensure that changes are beneficial Determining that the cost baseline has changed Managing the actual changes when and as they occur.

Cost management concepts Estimates■ Cost estimating Vs. Pricing■ Cost Estimating involves developing an assessment of how much it will cost the performing organization to provide the product or service. Pricing is a business decision -- how much the performing organization will charge for the product or service.

Cost management concepts (LCC) Life cycle costing ■ Project Cost Management is primarily concerned with the cost of the resources needed to complete the project. Life Cycle Costing includes acquisition, operating, maintenance, and disposal costs.

LCC = I + Repl – Res + E+ W + OM&R + O LCC CALCULATION LCC = I + Repl – Res + E+ W + OM&R + O Where: LCC = Total life cycle cost in present value (PV) of a given alternative I = PV investment costs. Repl = PV capital replacement costs. Res = PV residual value ( resale value, salvage value) E = PV of energy costs. W = PV of water costs OM&R = PV of non-fuel operating, maintenance and repair costs O = other costs.

Cost management concepts Cost types■ Indirect costs: Costs that are not directly related to the products or services of the project, but are indirectly related to performing the project Direct Costs: Costs that can be directly related to producing the products and services of the project.

Cost types (continue) Tangible costs or benefits : Those costs or benefits that an organization can easily measure in dollars. Intangible costs or benefits :Costs or benefits that are difficult to measure in monetary terms.

Cost management concepts Depreciation ■ Straight-line Method: Takes an equal credit during each year of the useful life of an asset. Earned value Management(EVM)■ EVM is a project performance measurement technique that integrates scope, time, and cost data.

Cost Management Plan A cost management plan is a document that describes how the organization will manage cost variances on the project. A large percentage of total project costs are often labor costs, so project managers must develop and track estimates for labor

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