Project Cost Management Overview

Project Cost Management

• Project cost management involves ensuring a project is completed within an approved budget.
• It includes processes for cost estimation, budgeting, and cost control.

Importance of Project Cost Management

• IT/SW projects have a poor track record of meeting budget goals, with average cost overruns ranging from 180% to 43%.
• Accurate cost estimates are crucial to avoid cost overruns.

Reasons for Cost Overruns

• Unrealistic project cost estimates from the outset.
• Lack of emphasis on realistic estimates.
• Involvement of new, untested technologies.
• Biased estimation due to lack of experience.

Basic Principles of Cost Management

• Profits are revenues minus expenses.
• Life cycle costing estimates the cost of a project over its entire life.
• Cash flow analysis determines estimated annual costs and benefits for a project.

Typical Problems with Cost Estimates

• Developing estimates for large software projects is complex and requires significant effort.
• Estimates are often done at various stages of the project.
• Lack of experience among estimators.
• Bias towards underestimation.
• Unrealistic estimation due to management pressure.

Cost Budgeting

• Cost budgeting allocates project cost estimates to individual work items and provides a cost baseline for performance measures.

Cost Control

• Cost control involves controlling changes to the project budget.
• It includes monitoring project costs and managing changes to the project cost baseline.

Earned Value Management (EVM)

• EVM is a technique that integrates scope, time, and cost data to measure project performance.
• It determines how well a project is meeting its goals based on a baseline (original plan plus approved changes).

Types of Cost Estimates

• Rough Order of Magnitude (ROM) estimates: done very early in the project life cycle, provides a rough ballpark of cost for selection decisions, accurate to -25%, +75%.
• Budgetary estimates: done early, provides a more detailed estimate for budget plans, accurate to -10%, +25%.
• Definitive estimates: done later, provides detailed estimates for purchases and actual costs, accurate to -5%, +10%.

Cost Estimation Tools and Techniques

• Analogous or top-down estimation: uses the actual cost of a previous, similar project as the basis for the new estimate.
• Bottom-up estimation: estimates individual work items and sums them to get a total estimate.
• Parametric estimation: uses project characteristics to estimate costs.

Constructive Cost Model (COCOMO)

• COCOMO is a model for estimating software development costs, developed by Barry Boehm.
• Parameters include source lines of code or function points.
• COCOMO II is a computerized model available on the web.

This quiz covers the basics of project cost management, including the definition of cost, cost measurement, and the importance of accurate cost estimates in project management.