“Money often costs too much.”
– Ralph Waldo Emerson
Sydney Opera House is built on 4.5 acres of land, is 183 m long, 120 m wide and is supported on 588 concrete piers sunk as much as 25 m below sea level! Construction started in March 1959, with an estimated cost of $7 million and estimated completion date of January 1963.
An ambitious and grand project indeed.
When the project was completed, it had cost $103 million with 10 years of delay.
A budget overrun of 14 times the original estimate!
Project Cost Management Knowledge Area helps with calculating cost of all the resources used on the project, figuring out the budget, and ways of keeping costs in check.
This knowledge area has 4 processes as below –
Plan How To Manage Cost
This project management activity defines policies, procedures and suggests any specific tools and techniques that organizational policies would mandate, for creating and managing changes to cost baseline, in other words, planning to controlling project costs.
Estimating Project Costs (Based on Activities)
This is the project management activity to identify costs associated with each of the tasks (including people and other resources such as equipment, servers, tools, machinery, software), and costs associated with identified risks, and understanding what does the project cost overall.
Determining Project Budget
This is the project management activity to determine budget considering the costs and reserves, and to understand how and when the money is released during project life cycle. This process establishes cost baseline. It also shows at which points in time should you make parts of budgeted money available to the project.
Controlling Project Costs
This project management activity is very essential for project sustenance and used to measure and understand the current spending, and forecast whether the project is on track to be completed with allocated budget or not.
Cost estimation is a crucial skill for a project manager to possess. Earned Value Method formulas provide valuable insights into incurring project costs, and forecasts help project manager to control costs.