Session Objectives

o Introduction to Cost and Cost Mgt o Why Cost Mgt is Important on Projects? o Project Cost Mgt Outcomes o Cost Mgt Processes o Project Cost Mgt PMI Process Overview

February 3, 2012

Sana Ullah Khan PE, PMP

What is Cost and Project Cost Management?

o Cost is a resource sacrificed or foregone to achieve a specific objective, or something given up in exchange. o Costs are usually measured in monetary units, such as dollars. o Project cost management includes the processes required to ensure that the project is completed within an approved budget.

February 3, 2012

Sana Ullah Khan PE, PMP

Why Project Cost Mgt ?

o A project is a business, and project managers can be viewed as CEOs of mini-businesses. o As such, they are expected to possess solid financial skills in order to deliver project goods and services to their clients cost e effectively. o Effective project management rests on a foundation of good financial practice.

February 3, 2012

Sana Ullah Khan PE, PMP

Why Project Cost Mgt ?

o Until recently, the only financial skills that managers on projects were required to have were basic budgeting skills. o However, in the current multidimensional approach, they should have a solid understanding of: o cost estimating techniques o dealing with the time value of money o conducting cost- benefit analyses o measuring work performance o engagement in effective cost control.

February 3, 2012

Sana Ullah Khan PE, PMP

When a project manager says: We have successfully completed the project. He activity means: triple constraints o On Time! o Within Budget! o With a High Level of Customer Satisfaction

Certainly, meeting the specifications is a top priority. A project that does not achieve the specs is a project that is going nowhere.

February 3, 2012

National Institute of Design and Analysis

Project Pitfalls
o The best-known project management tools and techniques address doing the job on time and emphasis on technical details only. o Project staff tend to be poorly educated about the business aspects of projects. o Less time is devoted to looking at the budget side of project management. o Typically, some attention is only given to developing project budgets and then tracking budget performance once the project is underway. o Not have many insights on financial issues that go beyond the basics of budgeting. o Projects that spend too much and generate too little revenue can drive their organizations out of business.
February 3, 2012 National Institute of Design and Analysis 7

Project Cost Mgt Outcomes

Key project team members must have a solid grip o f financial principles because such understanding contribute to effective financial management of projects resulting in project success.
o Effective investment decision making o Effective cost estimation to determine the volume of financial resources needed o Effective cost budgeting to ensure optimal allocation of resources to project activities o Effective cash flow management to ensure that project funds are available in the right quantities and at the right time o Effective monitoring and evaluation of cost o performance of projects
February 3, 2012 National Institute of Design and Analysis 8

Project Cost Management Processes

Cost estimating: Developing an approximation or estimate of the costs of the resources needed to complete a project. Cost budgeting: Allocating the overall cost estimate to individual work items to establish a baseline for measuring performance. Cost control: Controlling changes to the project budget.

February 3, 2012

National Institute of Design and Analysis

Project Cost Mgt Overview

February 3, 2012

National Institute of Design and Analysis

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