Every project needs to be completed in an agreed upon amount of money. Completing the project within budget is one of the most important project success criteria. Money is the most important resource and this needs to be spent wisely in a project.
Project cost management will become one of the critical knowledge areas of project management. Project cost management will focus on ensuring project costs are estimated in a most accurate manner, project budgeting is done by deciding the amount to be spent by different points in time of the project schedule and continuously monitoring and controlling cost.
Hence effective project cost control will first require accurate cost estimation and budgeting. As per PMBOK guide, following are the 4 processes for project cost management:
Other cost elements such risk response cost, contingency reserves to handle the perceived risks must be duly added in the project cost estimates. Apart from this, additional cost factors such as inflation, cost of financing, overheads, quality management and team motivation related costs should also be added to make the cost estimates robust and practical, not leaving any of the details and aspects of the project unaccounted. Check KnowledgeHut's PMP Exam Preparation guide.
On a regular basis, the project team needs to not only monitor and identify variances and corrective action, it will also be important to keep analysing to identify existence of any kind of trends in cost variances and reasons thereof. This will help the project team to work on to rectify and prevent any negative and bad trends.
Project cost management and control is one of the most important functions of project management. Especially large and high value projects need to have solid cost management and cost control mechanisms and processes in place for the projects. Cost management and control requires a very keen eye for detail and sharp vigil on cost expenditures and the work that is getting done. Variances must be identified regularly, and they must not only be rectified, but also the team needs ensure unnecessary variances should not occur in the future.
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