Cost Planning

• Cost planning determines the cost of the project
• To determine the cost,there is a need to determine resources needed --> resource planning
• The purpose of cost planning is to include the processes required to ensure that a projet team completes a project within budget

Cost Estimate

• Cost estimate is the process of estimating what you need to spend on the resource required
• Techniques include:
  • Analogous estimate or top-down estimate
    • A rough estimate based on past projects done
    • Not accurate but is used when no other information is available
  • Definitive estimate or bottom-up estimate
    • Estimation of each detail work package
    • Most accurate type of estimation

Cost Estimating Techniques

• Analogous estimates, a.k.a top-down estimates
• Bottom-up estimates
• Parametric modelling

Analogous estimate

• Analogous estimates, also called top-down estimates, use the actual cost of a previous, similar project as the basis for estimating the cost of the current project.
• This technique requires a good deal of expert judgment and is generally less costly than others are, but it can also be less accurate.

Bottom-up estimates

• Bottom-up estimates involve estimating individual activities and summing them to get a project total.
• This approach can increase the accuracy of the cost estimate, but it can also be time intensive and, therefore, expensive to develop.

Cost of resources

• For a task to be done, there are things that
  incur cost
• Types of resources at constitute to cost:
  • Human resources or labor (e.g. Programmer, Server admin)
  • Equipment (e.g. PC, Server)
  • Facilities (e.g. electricity, water)

Work effort and duration

• When you need to estimate the cost for a person to finish a task, you need to know how much ‘work effort’ is spent
• Different from task duration(based on calendar)
• Example, if a technical writer takes 4 days to produce a user manual but if he starts work on Thursday, then the duration will be 6 days (Thur-Tue)
• To put it simply, the duration gives when the task can be completed but the work effort gives you how much time and money is actually spent on the specific task

Calculating resources cost

• To determine how much resources
  • Time-based rate (e.g. hourly rate paid to staff)
  • Per use rate (e.g. usage of some commercial software)
  • Fixed rate (e.g. one time payment of purchased equipment such as server)

Cost budgeting

• Cost budgeting is the process of allocating your funds over the respective activities over time
• Cost budgeting allows a project manager to track the amount spent on each resource for each task
• Project cost budgeting involves allocating/dividing cost over period of time
• The main goal of the cost budgeting process is to produce a cost baseline, or time-phased budget, that Project Managers use to measure and monitor cost performance.

Special funds

• There are two types of special fund that are usually included in a budget
• Contingency Fund
• Amount of money set aside for unforeseen costs within the scope of the project
• Controlled by project manager
• Managerial Reserves
• Also an amount of money set aside by upper management to cover future situations
• But controlled by the upper management

Cost baseline

• The completed budget should be review with the project team member
• Once the review is done and there are no further changes, the copy is being save as the cost baseline
• The cost baseline is used during project execution to check the actual cost against the planned cost in the baseline

Source: PMP, Prince2