Summary

Cost management is a necessary part of project management, for it makes it possible to manage the cost baseline of the project. Without cost management, projects would use more or less money than allocated, and it would be impossible to fund future projects. The project manager, as in all things, is the person responsible for project cost management.

The work breakdown structure is the basis for the cost estimate. Since the WBS identifies all of the project work in a detailed workable way, it becomes the best place to determine the cost of the project. A cost estimate done this way produces a detailed estimate that can be rolled ''bottom up'' to any level of detail desired.

Cost estimating is done over the life of the project. In the beginning of the project only a small amount of information is known about the project and inaccurate estimates

Table 3-5. Double declining balances.

Purchase

Salvage

50%

Current

Year

Price

Value

Depreciation

Book Value

0

1,000,000

100,000

0

900,000

1

450,000

450,000

2

225,000

225,000

3

112,500

112,500

4

56,250

56,250

S

2B,12S

28,125

6

14,063

14,063

l

l,031

7,031

B

3,516

3,516

9

1,l5B

1,758

10

Total B99,121

879

are appropriate. In the creation of baselines for cost and schedule it is important that definitive, 5 percent to 10 percent estimates be reached.

Cost control in project management is best achieved through the use of the earned value reporting system. This reporting system makes it possible to measure performance to schedule and performance to budget in the same system. Project performance over or under budget is measured in dollars. Project performance ahead or behind schedule is measured in dollars.

In addition to the earned value reporting system, the project manager must face many of the financial decisions that a small-business manager must face and be aware of the financial world of reporting.

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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