Project Management Institute

Cost management

Managing the cost of a project is perhaps the primary function of most project managers. Many would argue that cost management, when integrated with time management is, in fact the essence of project management. Certainly concerns over cost and time management have produced the major techniques we think of as being unique to project management. David Haeney, Chairman of the Cost Management Task Group, has prepared the following materials to aid in defining and bounding this critical function.


Cost Management is the process of accumulating, organizing and analyzing the data that is required to make cost related decisions for the purpose of obtaining maximum financial effectiveness.


PROJECT SCOPE — to define in general the product to be manufactured, purchased or constructed.

Presentation — Organizing the project scope in a format suitable for the “client's” review.

Acceptance — The “client” gives the approval of the scope. Work to proceed.

Engineering Report — The document which clarifies the project on a detailed level.

Work Packages — A breakdown of the project into appropriate units for the purposes of this function.

BUDGET — Funds allocated for the completion of the scope.

Interpret scope — Determination of the scope such that it is clear to all parties involved in completion of the project.

Prepare Control Estimate — Detail breakdown of the scope. Dollar values assigned to individual items within the estimate. Used as a monitoring tool.

Project Funding — Process of making funds available.

SPENDING FORECAST — Breakdown of the funds allocated on the scope into specific time periods as to when the funds will be spent.

Past Performance — Analysis of historical data to determine any spending patterns or trends that can be of assistance to prepare the current spending forecast.

Review Budget Schedule Work Package — Accumulation of data necessary to prepare the spending forecast. Establish the relationship between the budget, schedule and work packages.

Forecasting — Forecasting the schedule on which budgeted funds would be initially committed, incurred and paid.

CONTROL — the process of managing the project.

Standards — The criteria that a project is measured against, to determine the status of the project in relationship to its plan.

Procedures — Systems and methods established and updated throughout the length of the project for the purpose of making decisions.

Action — The decision.

MONITOR — Process of updating and analyzing cost information.

Standards — Specific levels of accuracy developed for indicating the importance of cost data.

Procedures — System and methods established and updated throughout the length of the project for the purpose of accumulating data required for control.

Analysis & Report — Process of review of information, measuring of performance and reporting.

COST BENEFIT EVALUATION — The process of optimizing funds in relation to budget.

Analyze & Report — Detailing alternatives and information for decision making purposes.

Optimize Spending — Determining least cost for maximum results.

POST PROJECT EVALUATION — At completion of project comparisons are made with the original scope and the final results. Measures success of project.

Analyze & Report — Cost, Schedule, Benefits — Major criteria for measuring success of project. Comparing final cost, schedule to originals, explaining variances.

Future Recommendations — Data is organized so that it will be beneficial in the planning of future projects.

Cost Management

Chart B

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.



Related Content