FIT2002 Lecture Notes - Lecture 6: Whole-Life Cost, Sunk Costs, Cash Flow
13 Jun 2018
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L6: Project Cost Management
The processes required to ensure that the project is completed within an approved budget.
Happens during:
●Planning
●Monitoring & Controlling
Why is it important?
●Meeting budget goals is usually a way to define success of a project
●Overrun: additional percentage or dollar amount by which actual costs exceed estimates
Basic Principles of Cost Management
●Profits: revenues - expenditures
●Profit Margin: ratio of revenues to profits
●Life Cycle Costing: total cost of ownership
●Cash Flow Analysis:
○ determines estimated annual costs and benefits for a project
○Resulting annual cash flow
Types of Costs and Benefits
●Tangible costs/benefits: costs or benefits that an organisation can easily measure in dollars
●Intangible costs/benefits: costs or benefits that are difficult to measure in monetary terms
●Direct costs: costs that can be directly related to producing products/services of the project
●Indirect costs: costs that are not directly related to the products/services of the other
project but related to the performance
●Sunk cost: money that's been spent in the past
Processes
1. Planning cost management: determining the policies, procedures, and documentation that
will be used for planning, executing and controlling project
2. Estimating costs: developing an estimate of the costs of the resources needed to complete a
project
3. Determining the budget: allocating the overall cost estimate to individual work items to
establish a baseline for measuring performance
4. Controlling Costs: Controlling changes to the project budget
Planning cost management
Determining the policies, procedures, and documentation that will be used for planning, executing
and controlling project.
Develop the cost management plan:
●Control thresholds
●Rules of performance measurement
Document Summary
The processes required to ensure that the project is completed within an approved budget. Meeting budget goals is usually a way to define success of a project. Overrun : additional percentage or dollar amount by which actual costs exceed estimates. Profit margin : ratio of revenues to profits. Life cycle costing : total cost of ownership. Determines estimated annual costs and benefits for a project. Tangible costs/benefits : costs or benefits that an organisation can easily measure in dollars. Intangible costs/benefits : costs or benefits that are difficult to measure in monetary terms. Direct costs : costs that can be directly related to producing products/services of the project. Indirect costs : costs that are not directly related to the products/services of the other. Sunk cost : money that"s been spent in the past project but related to the performance. Determining the policies, procedures, and documentation that will be used for planning, executing and controlling project.
