About Project Cost Management
Budget baseline is established and costs are estimated in this knowledge area which is known as Project Cost Management. The plan to manage the costs is categorized in the cost management knowledge area too. Cost Management involves planning, estimating, budgeting, funding, and managing costs. Although estimating cost and determining budgets can be one process on small projects, PMI separates them into two processes because the exam assumes the PM is managing a large project. Many financial management techniques, such as ROI, payback, and discounted cash flow, are used during this process. This knowledge area consists of four processes.
Following are the important points to keep in mind.
- The learning curve allows the cost to decrease as a result of decreased installation time as workers complete more of the installation procedure. As the project team completes more and more units, the time to complete a hotel room should take less and less time.
- Value analysis/engineering is a systematic approach to find less costly ways to complete the same work.
- The cost management plan controls how cost variances will be managed.
- Funding limit reconciliation most likely will affect the project schedule, since work will need to be moved to when funds will be available.
- A Definitive Estimate: The most expensive to create (A great deal of work is needed to fine tune a project so that you can get a definitive estimate).
- The Project Budget and Baseline will not be finalized and accepted until the planning processes are completed.
- A Cost Management Plan contains a description of: The WBS level at which Earned Value will be calculated.
- The variable and direct costs are most affected by the size and scope of the project. Indirect costs are usually computed as a percentage of direct costs.
- Value analysis is a way of finding the least expensive way to do the work.
- The life cycle cost will provide the picture of the total cost of the project. It includes project costs and operations and maintenance costs.
- Training Costs: You are training the team on skills required for the project. The cost is directly related to the project and thus a direct cost.
- Fringe benefits are included in overhead and are part of indirect costs.
- A full-time team member who completes her work sooner than planned could be forced to wait for the start of her next activity. Since she is full time, she would have to be paid for time not working.
10 Knowledge areas specified by PMI:
This knowledge Area Project Cost Management is covered in PMP Certification Prep course which contains following practice tests:
This course includes practice tests and articles, but it does not cover every exam question. Only the PMI exam team has access to the exam questions for PMP exam, and PMI regularly adds new questions to the exam, making it impossible to cover specific questions. You should consider this course a supplement to your relevant real-world experience