Cost Management — Planning and Controlling Budget

Cost management process:

1. Plan Cost Management

2. Estimate Costs

3. Determine Budget

4. Control Costs

Cost estimation techniques:

Analogous estimating — use actual cost from similar past project; quick but less accurate (top-down)

Parametric estimating — statistical model using historical data (cost per square foot, cost per line of code)

Bottom-up estimating — estimate each work package then roll up; most accurate but most time-consuming

Three-point estimating — (Optimistic + 4×Most Likely + Pessimistic) / 6 (PERT formula)

Types of costs:

Direct costs — directly attributable to project (team salaries, materials)

Indirect costs — shared overhead (office rent, utilities)

Fixed costs — don't change with work amount (equipment rental per period)

Variable costs — change with work amount (materials per unit)

Sunk costs — already spent; do NOT factor into future decisions

Contingency reserve: For identified risks. Management reserve: For unknown unknowns. Both are part of project budget.

Reference:

Wikipedia: Cost Management

https://en.wikipedia.org/wiki/Cost_management