Project Cost Management: Learning Objectives

Objectives

After studying this section one should be able to:

1. Understand the importance of good project cost management.

2. Explain basic cost management principles, concepts, and terms.

3. Describe the resource planning, cost estimating, cost budgeting, and cost control processes.

4. Explain the different types of cost estimates.

5. Understand what is involved in preparing a cost estimate for an information technology project.

6. Perform calculations for earned value management.

7. Understand the benefits of using earned value management.

8. Describe how software can assist in project cost management.

A Sample Case of Project Cost Management

Juan Gonzales was a systems analyst and network specialist for a major city’s waterworks department. He enjoyed helping his country, Mexico, develop its infrastructure. His next career objective was to become a project manager so he could have even more influence. One of his colleagues invited him to attend an important project review meeting for large government projects, including the surveyor’s assistant project, in which Juan was most interested. The surveyor’s assistant was a concept for developing a sophisticated information system that included expert systems, object-oriented databases, and wireless communications. The system would provide instant, graphical information to government surveyors to help them do their jobs. For example, after a surveyor touched a map on the screen of a hand-held device, the system would prompt him or her for the type of information needed for that area. This system would help in planning and implementing many projects, from laying fiber-optic cable to laying water lines.

He was very surprised, however, when the majority of the meeting was spent discussing cost-related issues. The government officials were reviewing many existing projects to evaluate their performance to date and the potential impact on their budgets before discussing the funding for any new projects. Juan did not understand a lot of the terms and charts the presenters were showing. What was this earned value term they kept referring to? How were they estimating what it would cost to complete projects or how long it would take? Juan thought he would learn more about the new technologies the surveyor’s assistant project would use, but he discovered that the cost estimate and projected benefits were of most interest to the senior government officials at the meeting. It also seemed as if a lot of effort would be spent on detailed financial studies before any technical work could even start. Juan wished he had taken some accounting and finance courses so he could understand the acronyms and concepts people were discussing. Although Juan had a degree in electrical engineering, he had no formal education, and little experience, in finance. If Juan could understand information systems and networks, he was confident that he could understand financial issues on projects, too. He jotted down questions to discuss with his colleagues after the meeting.

Case Wrap-Up