Cost Management

Cost Management is a vital knowledge area in project management that involves planning, estimating, budgeting, financing, funding, managing, and controlling costs to complete a project within the approved budget. Here's an overview of the key processes involved in Cost Management:

1. Plan Cost Management: This process involves developing a cost management plan that defines how project costs will be estimated, budgeted, managed, and controlled throughout the project lifecycle. It establishes the guidelines and procedures for cost management.
2. Estimate Costs: Here, the costs of resources (such as labor, materials, equipment) required to complete project activities are estimated. Various techniques such as analogous estimation, parametric estimation, and bottom-up estimation may be used to determine costs.
3. Determine Budget: This process involves aggregating the estimated costs of individual activities or work packages to establish a project budget. The budget represents the total authorized funding allocated to the project.
4. Control Costs: This process involves monitoring and controlling project costs throughout the project lifecycle to ensure that the project remains within the approved budget. It includes processes such as monitoring cost performance, implementing cost change control, and preventing cost overruns.

Cost Management is essential for project success because it helps ensure that projects are completed within budgetary constraints, maximizing the return on investment for stakeholders. Effective cost management enables project managers to allocate resources efficiently, make informed decisions, and maintain financial accountability throughout the project lifecycle.

Basic formulas

Term	Formula	Description
Budget at Completion(BAC)	None	Original budget of the project.
Actual Cost (AC)	None	Actual Cost is the total cost incurred for the actual work completed to date.
Planned Value (PV)	PV = Planned % Complete * BAC	Planned Value represents the authorized budget assigned to scheduled work
Earned Value (EV)	EV = Actual % Complete * BAC	Earned Value represents the value of work actually performed.
Cost Variance (CV)	CV = EV - AC	Cost Variance indicates how much under or over budget the project is. A positive CV indicates under budget, while a negative CV indicates over budget.
Schedule Variance (SV)	SV = EV - PV	Schedule Variance measures the difference between the work performed and the work planned. A positive SV indicates ahead of schedule, while a negative SV indicates behind schedule.
Cost Performance Index (CPI)	CPI = EV / AC	CPI is a measure of cost efficiency of budgeted resources. A CPI greater than 1 indicates cost efficiency, while a CPI less than 1 indicates cost inefficiency.
Schedule Performance Index (SPI)	SPI = EV / PV	SPI is a measure of schedule efficiency. An SPI greater than 1 indicates better than planned performance, while an SPI less than 1 indicates worse than planned performance.
Estimate at Completion (EAC)	EAC = BAC / CPI	EAC is the expected total cost of completing all work, based on performance to date.
Estimate to Completion (ETC)	ETC = EAC - AC	ETC is the expected cost needed to complete the remaining work.
Variance at Completion (VAC)	VAC = BAC - EAC	VAC indicates the difference between the Budget at Completion and the Estimate at Completion. A positive VAC indicates the project is expected to be under budget, while a negative VAC indicates it will be over budget.
To-Complete Performance Index (TCPI)	TCPI = (BAC-EV) / (BAC-AC) or (BAC-EV) / (EAC-AC)	TCPI is a measure of the cost performance required to be achieved with the remaining resources to meet a specified management goal, such as the BAC or the EAC.