Project Cost Management - Processes, Planing, Control Tools and Types of Costs in Project | AIMS UK

Summary

This video script outlines the key processes in project cost management, including estimating costs, determining budgets, and controlling costs to ensure projects stay within budget. It explains different cost types like direct, indirect, variable, and fixed costs. The script also covers earned value management (EVM), forecasting, and performance reviews as tools for cost control. A case study illustrates how to calculate cost and schedule variances, providing practical insights into project cost management.

Takeaways

• 📈 Project cost management encompasses planning, estimating, budgeting, financing, funding, managing, and controlling costs to complete projects within the approved budget.
• 🔍 The 'Estimate Costs' process involves developing an approximation of the monetary resources needed for project activities, including weighing alternative options and risks.
• 📊 'Determine Budget' aggregates the estimated costs to establish an authorized cost baseline, which is crucial for monitoring project performance and controlling costs.
• 🛠️ 'Control Costs' involves monitoring project status to update costs and manage changes to the cost baseline, recognizing variances to take corrective actions.
• 💼 There are four types of costs in projects: direct costs (directly traceable to the project), indirect costs (not directly related to the project but support the business), variable costs (change with production levels), and fixed costs (remain constant regardless of production).
• 🏫 AMES is an accredited institution offering certifications, diplomas, MBA, and PHD programs in project management through an online, self-paced learning system.
• 📊 Earned Value Management (EVM) is a technique used to assess project performance by comparing planned work with actual accomplishments to measure cost and schedule performance.
• 📊 Cost variance is the difference between earned value and actual cost, indicating whether the project is under or over budget.
• 📈 Schedule variance measures the difference between earned value and planned value, showing if the project is ahead or behind schedule.
• 📚 A case study is provided to illustrate how to calculate cost and schedule variances, emphasizing the importance of understanding project financial health.

Q & A

What is project cost management?

Project cost management includes the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.

What are the main processes involved in project cost management?

The main processes involved in project cost management are estimating costs, determining budget, and controlling costs.

What is the purpose of the 'Estimate Costs' process?

The 'Estimate Costs' process is for developing an approximation of the monetary resources needed to complete project activities, including weighing alternative options and examining risks and trade-offs.

How is the 'Determine Budget' process defined?

The 'Determine Budget' process involves aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.

What does the 'Control Costs' process entail?

The 'Control Costs' process involves monitoring the status of the project to update the project costs and manage changes to the cost baseline.

What are the four types of costs in projects mentioned in the script?

The four types of costs in projects are direct costs, indirect costs, variable costs, and fixed costs.

Can you provide an example of direct costs in a project?

Examples of direct costs are direct materials, direct labor, use of equipment, use of facilities, number of employees, and consumption of services.

What are indirect costs and can you give an example?

Indirect costs are not directly identifiable and are not directly related to the project product. They belong to the core supporting business but cannot be directly assigned to projects or individual contracts. Examples include fringe benefits, indirect manufacturing expenses, general indirect expenses, and general and administrative expenses.

How are variable costs different from other types of costs?

Variable costs vary as changes in production are implemented. There is no variable cost when there is no production. Examples include running expenses of equipment and materials, performance bonuses, freight, and sales commissions.

What is a fixed cost in the context of project management?

Fixed costs remain constant and are independent of the amounts of work performed. They remain the same even when the production line is null. Examples include rent, depreciation, administrative team salaries, and general expenses.

What is Earned Value Management (EVM) and how does it help in project cost management?

Earned Value Management (EVM) is a technique that helps the project management team assess and measure project performance and progress by comparing the amount of work that was planned with what was actually accomplished to determine if cost and schedule performance is as planned.

How are cost variance and schedule variance calculated?

Cost variance is calculated as the difference between earned value and actual cost, while schedule variance is calculated as the difference between earned value and planned value at a given point in time.

What does a positive cost variance indicate in a project?

A positive cost variance indicates that the project is spending less than the planned amount.

What does a negative schedule variance mean for a project?

A negative schedule variance means that the project is behind schedule.