Understanding Cost Management

Cost Management
IS
Managing MONEY
Before, During, and After spending

Cost Management Processes:

• Estimate Cost
• Determine Budget
• Control Cost

Cost Vs. Budget

What you need to understand is:

Cost = Past (predictions)
Cost gives an idea of the cost levels to be expected depending on previous experiences

Budget = Future
Budget firmly states the costs to be incurred and lays out the exact amount to be spent for each activity.
Budget is my Plan

1. Estimate Cost

developing approximations of money needed to complete each activity
Can be measured in Currency, or Staff hours/days

Usually Cost Estimations have Rough Order Magnitudes (ROM)
±No%
And since this process is Iterative, starts out high (±50%) and keeps narrowing down (±10%)

2. Determine Budget

From Cost Estimates ➾ Aggregate Cost Baseline


This budget plan should be time-phased (i.e. plan for money over time)

Cost Performance Baseline Simple Example

3. Control Cost

Monitoring my money spendings vs. my budget plan

Any increase to the authorized budget can only be approved through the Perform Integrated Change control process (Integration Mgmt)

The Tools & Techniques used in this Cost Mgmt are various and worth having a separate Presentation

For now hope you benefitied!