4. Cost Management

Project Cost Management includes processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so the project can be completed within the approved budget

• Project Cost: Cost of resources needed to complete the project activities

• Budget: Approved estimate for a project or a work package → Project budget includes all funds authorized to execute the project

• Effort: Number of labor units to complete an activity or work package (often expressed in e.g. person hours)

• In agile projects there is no benefit from detailed cost calculations → lightweight estimation models should be used

  • Detailed planning should be performed in a just-in-time fashion (for next PBI’s)

Predictive Cost Estimation is the process of developing an approximation of the cost or resources needed to complete project work

• Determines the monetary resources required for the project

• Is periodically performed throughout the project as needed or planned

Cost Controlling is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline

• Maintains the cost baseline throughout the project

• Performed throughout the project

• Monitoring expenditure with regard to the value of work accomplished

• Bring expected cost overruns within acceptable limits

• Major output: Cost Forecast

Determine Budget is the process of aggregating the estimated costs of individual activities to establish an authorized cost baseline

• Determines the cost baseline against which the project performance can be monitored and controlled

• Performed once or at predefined points in the project (usually stage boundaries)

• Can lead to rescheduling or changing the approach depending on the funding limits

Estimating costs for a Scrum project can be based on either a fixed-date release or a fixed-scope release

• Cost Baseline: Approved version of the time-phased project budget

  • Includes Contingency Reserve

  • Excludes Management Reserve

  • Basis for comparision to actual cost

  • Summation of the approved budgets for the different schedule activites

  • Project Management is responsible for cost baseline

• Contingency Reserve: Budget within the cost baseline that is allocated for the identified risks (known-unknowns)

• Management Reserve: Amount of the project budget withheld for mangagement control purposes → reserved for unforeseen work that is within the scope of the project (unknown unkowns)

  • The management reserve is provided by the steering board discussed in steering board meetings

• Labor (Effort * Cost per labour unit)

• Equipment

• Services

• Facilities

• Special Categories like inflation, conversion rates, taxes