Project Management/PMBOK/Cost Management

Project Cost Management is the fourth knowledge area of project management.

It starts with a process of planning that produces a cost management plan. Then there is an iterative process that develops and updates the cost estimates and cost baseline. After these have been produced, a monitoring and controlling process is used to measure project performance and to manage any change requests to the project scope, schedule, and costs.

Cost Management and Profit


Purpose of every private organization is to maximize the profit and there are two ways to to maximize the profit

  • To win the order at maximum highest price (That is not possible in this imperfect competition market)
  • To reduce the maximum manufacturing cost by setting different standards, and then management try to achieve these standard.

Second option (controlling manufacturing cost) is in control of the organization that can be apply but it will be necessary that the higher management should accept this mentally, consider this a positive step for growth of the organization, and do not feel it burden / restrictions. Provision of actual data should be as easy as possible so that cost can be calculated near to actual. There should be no hesitation in provision of data because this data will be used especially for internal management and not for external bodies. ( Tax department etc.)

Project Cost Management Processes


The PMBOK® Guide—5th Edition—describes the following 4 processes as necessary for planning, quantifying and measuring costs, so that the project can be completed within the approved budget:

  1. Plan Cost Management: used by a project manager to create the cost management plan.
  2. Estimate Costs: it develops an approximation of costs associated with each of the resources required for all schedule activities of the project.
  3. Determine Budget: it aggregates the individual activity cost estimates into a total project cost, establishes the costs timing, and measures the performance of the project against the obtained baseline.
  4. Control Costs: it monitors the project budget and manages variations to the cost baseline included in the project plan.