Cost Management Basics

Cost Management Basics

Cost management is the process of planning and managing the budget of a business or project. It helps the project manager estimate what the project will cost and set controls to reduce the chances of the project going over budget. The four steps in the cost management process are resource planning, cost estimating, cost budgeting, and contingency reserves. Resource planning involves defining the project scope and using historical data, expert opinions, and resource planning tools to estimate the resources that will be needed. Cost estimating consists of assigning costs to the resources you need to execute your projects, such as labor, materials and equipment.

Cost budgeting is the sum of all project costs, including direct, indirect, fixed and variable costs. Project budgets allow project managers to quickly understand if their costs are too high and if there's a risk of cost overrun.
Cost control is the activities, guidelines and procedures taken to minimize and track project costs. Project management software can help you to easily keep track of costs with tools such as timesheets, workload planners and project dashboards. A cost management plan is an outline of the cost estimation for the project, including all allocation and how the project manager will control those costs. It must take into account the resources that impact the project budget, such as materials or people, fixed, variable and overhead costs, and the stakeholder, who has a vested interest in keeping costs down. Key elements that must be included in a cost management plan include estimation methods, units of measure, cost baseline, cost control thresholds, performance measurement methods, and reporting guidelines.