Home / Guidelines / Project Management / Project Cost Management Guidelines

Project Cost Management Guidelines

Importance of Cost Estimation

Project cost estimates are central to setting up the foundation for making key project decisions, taking project initiatives, budgeting activities and controlling expenditures. Project cost estimates are used to establish a set of metrics against which project success will be measured, and to communicate project progress to the stakeholders at any given point in time.

The necessity of estimating project costs consists in maintaining confidence and trust that the project activities are performed properly and as expected throughout the entire project life-cycle. Logical and reasonable cost estimates will allow the project team to make collaborative efforts with a reduced probability of risk occurrence and failure because cost estimators use various efficient methodologies to forecast risks, estimate costs, determine budget and control spending.

Some projects (especially IT and engineering projects) by nature are complex and contain more risk elements than other projects. As a project manager, you must pay careful attention to planning and budgeting by preparing cost estimates and forecasting future expenditures. Project cost management will help you capture the costs required to complete your project scope on schedule.

Three Processes of Project Cost Management

With reference to PMBOK, 4th edition, there are three basic processes for managing project cost. The processes are Estimating Cost, Determining Budget and Controlling Cost. These processes interact with each other and can be initiated and carried out at least once during a typical project. By reading the Cost Management Guidelines you will learn more on these processes. The Guidelines will be helpful for those people who want to get an understanding of project cost estimation and learn how to measure costs, define and allocate budgets, and control expenses and financial flows. The Guidelines include the following paragraphs: