Effective cost management involves four steps
1 Resource Planning
2 Cost Estimation
3 Cost Budgeting
4 Cost Controlling
The benefits of cost management:
Identify each of the project’s costs, double-check that the charges have been approved before purchasing, maintain a central record of all costs incurred, and keep track of the overall cost of the project.
The objective of cost management is to provide a methodology for :
Deriving the project baseline budget with the associated tracking tool,
Determining how expense reporting will be carried out
Describe how the project’s cost variance will be managed and provide information for decision-making.
Resources Planning
The first step in the project cost management process, and it involves calculating the total cost of resources required to complete a project successfully using a work breakdown structure (WBS), which is a hierarchical representation of all project deliverables and the work required to complete them.
The required resources for each component of the work breakdown structure, then sum them up to get a total resource cost estimate for all project deliverables
Cost Estimation
A quantitative assessment of the expected costs of all resources needed to perform the activity or project. It is a way of estimating and projecting a project’s costs and expenses in order to create a budget.
Labor, subcontracts, materials (including consumables), plant and construction equipment, services and facilities, and inflation allowance and contingency costs are just a few examples. Cost estimation is a continuous process.
Cost Budgeting
The process of combining the estimated costs of individual activities or work packages to create a project budget or cost baseline for monitoring and measuring performance.
Cost estimates are added together to create a project budget, which is then time-phased using a construction schedule and a schedule of quantities to create a cost baseline.
Keep provision for “management reserve” for unidentified risks and “cost contingency” for identified risks.
Cost Control
Cost Control
The Cost Performance Index (CPI) is a method for calculating the cost efficiency and financial effectiveness of a specific project through the following formula: CPI = earned value (EV) / actual cost (AC). A CPI ratio with a value higher than 1 indicates that a project is performing well
The practice of monitoring and evaluating cost performance in order to keep expenditures within the allocated budget.
The process of keeping track of the project’s progress in order to update the project budget and manage cost adjustments.
To ensure that cost expenditures do not exceed the budgetary ceiling, and cost performance must be monitored to identify any deviations from the approved cost baseline.
Cost Control
The output of the cost control includes the following deliverables, which will be updated throughout the project lifecycle:
Updates on the budget
Corrective actions
Revised cost estimate
Reference เอกสารประกอบการสอน วิชา Cost Management for Real Estate Development Project/Asst. Prof. Nattasit Chaisaard, Ph.D. (Construction Engineering and Management) SFHEA