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Project Cost Management – Definition, Process and Software

Eric McConnell
June 21, 2010

A quick post about cost management in projects

managing project costsIn order to succeed in managing a project, the project manager needs to learn how to make cost calculations, estimate resources required for the project, develop cost spreadsheets, use cost management templates, and more. The manager should understand that all information on the need, availability and consumption and of project resources (like labor, money, time, technology) can be gathered, filtered, sorted and managed by project cost management and its special methods. Let’s find out what the process of managing project expenses means and what basic software functionality is necessary for performing the process.


Project Cost Management is a series of activities for estimating, allocating, and controlling costs within the project. It allows determining and approving budget for the project and controlling spending. For example, in construction project cost management it is vital to estimate cost of materials, equipment, salary of workers, etc. In IT project cost management it is critical to estimate cost of software development, salary of IT staff, etc.

Effective project cost management allows each project to be specific and unique because that project entails costs and requires specific funding. However, no matter whether you lead a software development project (IT project cost management) or construction project (construction project cost management), you should consider project cost management as a process that consists of the three key steps (get more info at the PM Guidelines)


The process of managing project costs is an activity for estimating costs, developing project budget and controlling spending. The project cost management process includes the following key steps:

  • Cost Estimation. It is the project cost management process step when the project manager cooperates with the financial department to estimate costs required for purchasing all necessary good/services and undertaking necessary activities to deliver the project. Project Cost Estimation is conducted at the planning phase. The project manager uses project cost management software to develop spreadsheets and make calculations.
  • Budget Determination. At this step of the cost management process, cost spreadsheets are used to develop the budget framework and determine the budget. The project manager can use project cost management software to work in collaboration with the financial department to determine items of the budget and sources of funding and then to allocate the budget. The step entails close cooperation with the project sponsor.
  • Spending Control. It is the step of the project cost management process when the allocated budget is reviewed and spending is tracked. The project manager takes responsibility for control spending and to ensure that the budget allocation is optimized and costs are fully covered with the planned and allocated budget.


It is almost impossible to manage costs and determine budget for a project if cost management software is not used. Such software lets take control of the process, collaborate with the project team and communicate the result to the project stakeholders. Typical software for project cost management combines the following functionality:

  • Project Tree Builder: users can develop project trees and task hierarchies which help estimate cost per work item (task or activity). Tree building tool of project cost management software is also used to develop structured spreadsheets.
  • Templates Builder: users can develop project cost management templates that to make the process of managing project costs simpler. Project cost management templates are helpful to plan typical projects.
  • Custom Fields: users can add new fields to tasks and edit existing ones. A custom field can be created to add such task attributes as “Cost”, “Duration”, “Price”, “Spending”, “Quantity”, “Total Amount”, etc.

Here are some examples of software that features project cost management functionality MS Project, TaskMerlin, VIP Task Manager.

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