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What Is Project Cost Management?

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Thorough project management knowledge, skills and techniques are necessary for the successful execution of a project from iniatiation to closing. 

One of the tools for a successful  project execution is an effective project cost management.knowledge.

Project Cost Management includes necessary techniques or processes for the completion of projects within approved budget.

These processes are estimation of costs, determination of budget and control of costs.



1. Estimation of costs -

The establishment of monetary resources required to successfully complete a project is crucial.

Some of the techniques used to estimate costs include 

a. parametric estimating - the parametric cost estimates are calculated by using the relationship between historical data and other variables such as cost, budget and duration.

b. reserve analysis - cost estimates sometimes include reserve analysis- this analysis is relevant to cost estimates that contain cost uncertainty. 

The uncertainty is accounted for by including contingency reserves or allowances in cost estimates.

Contingency reserves are often required as part of funding requirements.

c. analogous estimating - this techilnique uses values obtained from scope, measures of scale, budget and duration. The technique relies on historical costs of similar projects done in the past, to make estimates for a current project.

There are other tools such as expert judgement and the bottom up estimating 

2. Determination of Budget.

Budget determination  is a process that aggregates cost estimates of activities to establish an approved baseline. 

The established baseline would include authorized budgets (standards for assessing project cost performance) and exclude reserves made by management.

Some of the tools used to determine project budgets are expert judgement and budget reserve analysis.

a. Expert judgement is made on the basis of expertise in industry, knowledge of the project area and relevant experience.

b. Budget reserve analysis is used to establish both managment and contingency  reserves for a project. 

Contingency reserves as pointed earlier, are necessary because sometimes during project execution, some unplanned changes may become necessary. 

3. Cost control.

This is the process of monitoring a project, updating the budget when it's necessary and managing changes to baseline.

Some of the techniques used are forecasting, performance reviews, Earned Value Management and variance analysis and To-Complete Performance Index (TCPI).


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