Friday 7 May 2021

Project cost management concept


Cost management is ensured through the following processes during the project:
  • Value estimates
  • Project budget development
  • control the cost of the project.

Project cost management processes provide:

  • Understanding by the project manager, customer and investor of the project the project's project forecast value of individual works, packages of work and the entire project (value assessment process);
  • A clear understanding by the project manager of when, how much and for what money will be spent in the project (budget development process);
  • lack of contingencies in the project, reduction of the number of changes and deviations of the actual budget from the approved base budget (cost control process).
These processes, as well as any processes during the project, can be iterative and run on the principles of consistent development.

The main tasks of the project manager in managing the cost:

  • Determining the general rules and principles of project cost management;
  • Develop a cost management system for the project.
  • Engaging appropriate functional professionals in cost-assessment work;
  • Assess the amount of resources needed to carry out the project.
  • Project estimates and budgets for development
  • Ensuring project financing according to the financial plan;
  • Accounting for actual costs during the project
  • Monitoring the cost parameters of the project, identifying deviations and timely implementation of corrective impacts;
  • archiving the actual value of the project.

Project Cost Management combines processes that are carried out in the planning, budget development, and cost control process to ensure the completion of a project within an approved budget.

PMBOK: Project Cost and Finance Management is a project management section that includes the processes required to shape and monitor the project's approved budget.

An important feature of project cost management processes is their very close relationship with other planning processes. In particular, it is difficult to assume that it will be possible to develop a correct budget without information about the necessary resources and without a calendar plan.
Information about the project's risks can also have a significant impact on both the size and structure of the project.
One of the first steps a project manager does in the course of managing the cost of a project is to develop a value management concept. This concept should include general project cost management rules, accounting and documentation principles, recommended techniques and technologies.

Develop the concept of managing the cost and financing of the project:

  • Develop a strategy for managing the cost and finances of a project (defining goals and objectives, success and failure criteria, limitations and assumptions);
  • Economic analysis and justification of the project (marketing, cost assessment and sources of funding, implementation forecast);
  • Overall economic assessment of the project;
  • Develop an enlarged funding schedule;
  • Determining the cost and financing requirements of the project;
  • approval of the concept.


All costs in the project can be divided into three types:

  1. Liabilities
  2. Budget costs
  3. actual costs.
Obligations are planned, future costs that arise when signing contracts, contracts, ordering any goods or services. This usually happens in advance according to the project plan. Accounts issued by suppliers are subject to mandatory payment. However, payment can be made under different rules at different points in time:
  • When materials and components are ready;
  • After the delivery of goods and services;
  • Full or partial prepayment;
  • in accordance with the policy of an organization that purchases or provides goods and services.
Depending on how the organization's accounting is organized, you can document budget reductions by the amount of liabilities sooner or later. In some organizations, these costs are not taken into account until the bill is received or paid. In this case, the current state of the project budget is available to the manager in a distorted form and does not give a full picture for decision-making.

Budget costs represent the estimated cost of work distributed over time. This is the project's spending schedule. It is sometimes referred to as a cost plan. It contains information on the size and timing of the project's planned costs in the production of work.

Actual costs show a real outflow of cash in the project. The actual cost report provides information on the actual costs of the project. In doing so, they can occur:
  • During the work of the project.
  • At the time of payment of cash;
  • at the time of the debit of the money from the account.
In order to improve the efficiency of the project cost management system in the concept of cost management and project financing, it is desirable to clearly define:
  • Pay-per-work policy (prepaid, due payment on the fact, etc.);
  • Payment policy (on the day of receipt, for a certain period of time, etc.);
  • Principles of decommissioning labor costs, materials and components;
  • How to account for costs in a project
  • Principles of payment for work when attracting subcontracting organizations;
  • interconnection of work schedules and write-offs of labor costs and payment of mechanisms.

1 comment:

  1. very good info about project cost management, I am also doing my online MBA course in project management and i found this info very useful for my study as well.