2.0 Planning and Managing Project Cost
Learning Objectives
By the end of this session, you will be able to:
- Define project estimation
- Plan and allocate resources in a project
- Identify distinct types of cost
- Apply appropriate concepts, tools, and techniques for estimating project costs
- Create estimates and budgets (including, resources, duration, schedules, and costs
- Manage estimates including cost in projects and how to budget
- Analyze and evaluate budget and cost estimates
- Apply variance analysis and earned value management to manage and track project progress
- Apply strategies to improve estimating process and respond to budget uncertainties.
Introduction
“An estimate is a quantitative assessment of the likely amount or outcome of a variable, such as project costs, resources, effort or durations and benefits” (PMBOK 7th Edition).
Project estimation is the process of analyzing available data to predict the time, cost, and resources needed to complete a project. Typically, project estimation includes scope, time-frames, budget, and risks (PMBOK 7th Edition).
According to PMBOK 7th edition, planning performance domain involves organizing, elaborating and coordinating project work throughout the project. Planning any project or program entails developing estimates. Estimating a piece of work is hard and as project managers and team members our task is to find ways of making estimation of a project as accurate as possible. Many factors impact the decision-making process such as the choice of estimating techniques and for the project owner or sponsor or product owner the decision may affect the entire project team–and the business.
It is important to continually evaluate the value and benefits of the project to the stakeholders since the inherent worth of a product is judged by the stakeholders in particular the customer. Since all projects have a range of, different values generated for each group of stakeholders have to be considered and balanced with the whole, while focusing on the customer perspective.
Estimating cost in project management is a process and it forms the basis for determining and controlling the project budget. Costs are estimated for the first time before the project starts and the cost estimates may be used to build a business case. Cost estimation also takes place at the beginning of a project and subsequently, the (re-)estimation of the project cost is repeated on an ongoing basis to account for more detailed information or changes to the scope or timelines or budget.
A project’s budget has the potential to impact every facet of the project, making it one of the most critical responsibilities of a project manager. A poorly designed budget leads to improper asset allocation, unrealistic expectations, and potentially, a failed project. Thus the budget must be accurate for a project to succeed. Estimation is therefore one of the most effective tools in the project manager’s tool box for planning an accurate budget.
