Chapter 7: Introducing Project Cost Management

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Overview

Projects cost. Have you ever worked with a client who had a huge vision for a project, but had little capital to invest into the vision? Or have you worked with a client who gasped when you revealed how much it would cost to complete their desired scope of work? Or have you been fortunate and had a customer who accepted the costs for the project at face value, made certain the funds were available, and sent you on your way to complete the work? As a general rule, management and customers are always concerned with how much a project is going to cost in relation to how much a project is going to earn.

Most likely there is more negotiating, questioning, and evaluating for larger projects than for smaller ones. The relation between the project cost and the project scope should be direct: you get what you pay for. Think it's possible to buy a mansion at ranch home prices? Not likely. Think it's possible to run a worldwide marketing campaign at the cost of a postcard mailer? Not likely. A realistic expectation of what a project will cost will give great weight to the project's scope.

As the business need undergoes analysis, progressive elaboration and estimates are completed based on varying levels of detail, and eventually the cost of the project will emerge. Often, however, the predicted costs and the actual costs vary. Poor planning, skewed assumptions, and overly optimistic estimates all contribute to this. A successful project manager must be able to plan, predict, budget, and control the costs of a project.

Costs associated with projects are not just the costs of goods procured to complete the project. The cost of the labor may be one of the biggest expenses of a project. The project manager must rely on time estimates to predict the cost of the labor to complete the project work. In addition, the cost of the equipment and materials needed to complete the project work must be factored into the project expenses.This chapter examines the management of project costs, how to predict them, account for them, and then, with plan in hand, to control them. We'll examine exactly how costs are planned for and taken into consideration by the performing organization and how the size of the project affects the cost estimating process.

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