Cost Management is an important area of project management knowledge. Many activities are involved in a project. Several project resources are responsible for project activities. Various materials, tools, and equipment are needed to complete the project scope. All of these require a budget. You need to buy tools and materials. The company must also pay salaries for project staff. This knowledge area focuses on managing the expenses and budget for the project.
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Project management processes can be documented and managed with the help of project management templates. To get an idea of the process, you can view free samples of project management templates.
Project Management Professional training will provide detailed information about the processes as well as other important terms related to Cost Management. There are also many PMP exam questions that cover Cost Management. These questions can be used to help you assess your knowledge if you are applying for PMP.
What is Cost Management?
It covers the processes necessary to complete the project within the budget. This knowledge area helps to determine the budget required to complete the project. It also monitors and controls the project costs to ensure that they are within the budget.
This knowledge area produces the main output, Project Budget. Once the project scope has been established and the project activities have been determined, each project deliverable will have a cost. Because project resources will perform tasks, they will have costs such as salaries, expenses, etc. There will also be tools, materials and equipment that will be required during the project. These will also require a budget.
This knowledge area focuses on the cost of resources required to complete project activities. Once the budget has been established, cost management will continue to monitor and measure the cost performance of each project in order to meet the agreed budget.
Cost Management has four processes. Three of these processes belong in the planning process group and one belongs to the monitoring and controlling process group. These are:
Plan cost management
Estimate costs
Determine budget
Control your costs.
The Importance of Cost Management
This knowledge area teaches you how to manage the expenses and budget of a project. It also teaches you how to monitor and control the status and measure budget performance.
Four main processes for cost management in project management
Plan Cost Management Process
This knowledge area covers the first step, which is planning cost management. This process teaches you how to estimate costs, budget and manage expenses throughout the project. This process produces the main output, the Cost Management Plan. It explains how to manage project costs and budget.
Two important terms in the Plan Cost Management Process
Project management is not complete without considering the life cycle cost. Every product has a life span. Do you still have your first cell phone? Most likely, no. Most technological products in today’s world have a maximum of 2 years of life.
Value engineering is the ability to do the same work in a cheaper way. If you only need a bulldozer to complete a construction project for two months, it will probably be cheaper to lease than buy a bulldozer, even if you don’t plan on using it in future projects.
Estimate costs process
The second step in cost management knowledge is to estimate costs. This process includes cost estimation for each project activity, tools, materials, and equipment. Based on these estimates, the overall project budget can be estimated.
There are many costs associated with a project:
One example is office rent. This is a fixed cost. Take a look at