Cost Control Basics for the PMP Certification Exam
Controlling costs is an important job of the project manager that will be covered on the PMP Certification Exam. Cost overruns can be caused by so many different events. Here are some of the more common causes:
Inaccurate estimating: The person estimating didn’t know how to estimate, wasn’t given enough time or information to develop a good estimate, or was asked to arbitrarily reduce the estimate.
Inappropriate estimating methods: If you use cost estimates that are more than two to three years old, they won’t be reliable. In addition, you need to select the correct estimating method, such as parametric, analogous, and so on.
Unplanned, in-scope, work: If you don’t fully define your project and product scope, you might find work in there that you didn’t identify during the planning process. You still have to do that work, but you don’t have the budget for it.
Scope creep: Adding or changing scope without taking into consideration that the cost impacts will cause you to go over budget.
Quality issues: If you find a lot of defects and have more scrap and rework than planned, you will go over budget.
Change in resources: If you plan resource rates at one amount and then get different resources that cost more, you will incur an overrun.
Risk event occurring: Responding to identified risks, or developing a work-around for unidentified risks, can cost money that wasn’t budgeted.
Contractor overrun: A cost-reimbursable contract can require you to spend more than you had planned.
Lack of change control process: If you don’t have a process to identify, evaluate, vote on, and manage project changes, you will almost certainly go over budget because the scope will run amok, the schedule will never baseline, and people will tell you “it costs what it costs.”
Given all those reasons for cost overruns, you can see why this process can be challenging.
Control Cost. Monitoring the status of the project to update the project costs and managing changes to the cost baseline.
Cost Baseline. The approved version of the time-phased budget, excluding any management reserves, which can be changed only through formal change control procedures and is used as a basis for comparison against actual results.
Performance Measurement Baseline. An approved integrated scope/schedule/cost plan for the project work against which project execution is compared to measure and manage performance. The PMB includes contingency reserve but excludes management reserve.
Cost Management Plan. A component of the project or program management plan that describes how costs will be planned, structured, and controlled.
The cost baseline is your commitment to the sponsor for project expenditures and reserves. The cost baseline should change only in response to a change request that has gone through the Perform Integrated Change Control process.
The phrase “performance measurement baseline” is used when earned value (EV) techniques are employed on the project.