What is cost?
Cost is one of the three most import factors in the Project Management. The other two are Scope and Time. Pictures speak more then words, so the three important factors of project management can be shown in below picture. Quality is the center theme of this triangle.
What is Cost Management Process?
Cost Management Process involves three Cs.
EC = Estimate cost
DC = Determine cost
CC = Control Cost
When do you estimate cost, determine cost and control cost?
Estimate cost occurs in the project planning phase. Determine cost occurs in the project planning phase. Control cost occurs during the monitoring and controlling phase.
What is Cost Management Plan?
Cost Management Plan is developed as part of Project Management Plan.
Cost Management Plan primarily includes:
• What currency (dollar, Euro, INR etc) will be used in the estimates?
• What level of accuracy is required for the estimate?
• What will be the reporting format?
• What will be the cost types in the project?
• What rules will measure the cost?
• What will be the control thresolds?
…etc.
What are Cost types?
Cost can be divided into following types:
Direct Cost and Indirect Cost:
Direct costs are related to the project work. Example: - team member’s salary, travel, cost of materials or equipments used in the project etc.
Indirect costs are overhead costs for the benefit of more then one projects. Example:- Taxes.
Variable Cost and Fixed Cost
Variable costs are those which changes with the amount of supplies or production. Example: - Cost of materials, supplies, labor cost etc.
Fixed Cost is those which do not change with the amount of production or supplies.
Example:- Project set-up cost, rental costs etc.
So how does a Project Manager Estimate Cost?
To estimate the cost it is must to know WHAT IS ESTIMATED. If you know what you have the estimates things becomes easy. Following list will help to understand what is estimated.
• Quality efforts cost
• Risk efforts cost
• Project Manager Time cost
• Project Management activities cost
• Direct Costs (team member’s salary, training, paper, pencil, materials etc.)
• Indirect Costs (Management general office expense, project set-up, rental etc)
So how estimates are done?
To do the estimates there are many methods which can be used. Following list contains the methods which a project manager can used to do the estimation:
• One-Point estimates
• Analogous estimate
• Parametric estimate
• Three-Pint estimate
• Bottom-up estimate
…etc
So what can be used for to the estimates?
From the many things a Project manager need scope baseline, project schedule, risk register, human resource plan (labor rates etc) to do the estimates. He/She needs to know the company policies on estimating. He should have access to the lesson learn; historical information’s to do the estimates.
…More on the project cost soon…till then please feel free to add comments about the post.
Related Article:
- Project Quality Management: What is Quality?
- What is XMR Chart?
- Do you care for your Communication Style?
- Do you care for your Visual Communication Style?
- Do you care for your Kinesthetic Communication Style?
- How to improve your V.O.I.C.E?
- PM: How accurate is your Project Cost Estimates?
- PM: Do you know your Project Cost?
