Project Cost Management Guide

🟦 Project Cost Management Guide

🔷 Five Core Areas of Cost Management

1 A. Resource Planning – Aligning People, Tools & Time

1️⃣
2️⃣B. Cost Estimating – Defining Project Costs
3️⃣C. Cost Budgeting – Building the Project Budget
4️⃣D. Cost Control – Monitoring & Managing Costs
5️⃣E. Cost Reporting – Archiving for Future Reference

### A. Resource Planning – Aligning People, Tools & Time

✅ Objective: To ensure the right resources are available at the right time, within budget
constraints.

📌 Steps:
1. Define Resource Types:

- Human Resources (e.g., engineers, laborers, supervisors)

- Equipment (e.g., cranes, trucks, mixers)

- Materials (e.g., concrete, steel, finishing items)

2. Map Resources to Activities:

- Align with the work breakdown structure (WBS)

- Assign resource quantities, duration, and timing

3. Validate Availability & Capacity:

- Confirm internal/external resource commitments

- Identify peak periods to avoid over-allocation

4. Create Resource Calendar:

- Integrate into the overall project schedule

- Adjust based on delivery lead times or supplier schedules

5. Estimate Resource Cost Impact:

- Combine with CBS to forecast labor/equipment costs

6. Coordinate with Planning & Procurement Teams:

- Ensure procurement aligns with installation timelines

- Reduce idle time, storage costs, and delays

✅ Output:

A realistic resource-loaded schedule with aligned cost estimates and procurement plans.

### B. Cost Estimating – Defining Project Costs

✅ Objective:

To calculate the total project cost by analyzing:

- Quantities, methods, materials, labor, equipment, and risks

- Design specifications and project scope

📌 Types of Cost Estimation:

🔹 Conceptual Estimating (Early Stage, Limited Data)

- Ratio Factor Method: Historical data ratios (e.g., cost per unit capacity)

- End Product Method: Fixed rate per deliverable (e.g., $1,000/room)

- Physical Dimensions Method: Rate per unit area/volume (e.g., $100/m²)

🔹 Deterministic Estimating (Detailed, Based on Drawings & BOQ)

- Quantity Surveying: Accurate measurements from blueprints

- Schedule Alignment: Link costs to project timeline (tender-level)

- Cost Breakdown Structure (CBS): Organized hierarchy of cost categories

📊 Cost Components Overview:

Category:

- Direct Costs: Materials (unit price + logistics), labor, subcontractors, equipment

- Indirect Costs: Staff salaries, site accommodation, safety gear, QC labs, security

- Overheads: Insurance, bonds, head office allocation, bank interest

- Risk Reserve: 5–10% for identified risks

- Contingency: 3–5% for unknowns

- Grand Total = Sum of all above

### C. Cost Budgeting – Building the Project Budget

✅ Objective:
Convert estimates into a time-phased, risk-adjusted budget for execution.

📌 Steps:
1. Link each cost item to schedule activities

2. Add risk reserves (5–10% of total)

3. Include contingency buffer (3–5%)

4. Add financial costs (loans, interest, prepayments)

5. Finalize the total budget → use it as baseline for cost control

📆 Budget Example Over 6 Months:

Element | Monthly Breakdown (USD) | Total

Category Jan Feb Mar Apr May Jun Total

Direct $80,000 $100,00 $90,00 $100,00 $70,00 $60,00 $500,00

Costs 0 0 0 0 0 0

Indirect $20,000 $20,000 $20,00 $10,000 $15,00 $15,00 $100,00

Costs 0 0 0 0

Overheads $10,000 $10,000 $10,00 $5,000 $5,000 $10,00 $50,000

0 0

Risk Spread $30,000 $30,000

Reserve across all
months

Contingen Held for $20,000 $20,000

cy emergen
cy
allocatio
n

Total $700,00
Budget 0

⚠️Note: A realistic schedule ensures resource availability, accurate cash flow forecasts, and
better alignment between teams.
 ### D. Cost Control – Monitoring & Managing Costs
✅ Objective:

Ensure adherence to budget by tracking actual costs, performance, and deviations.

📌 Steps:
1. Cost Reporting – Compare PV (Planned), AC (Actual), EV (Earned), and analyze variances

2. Collect Actual Cost Data – From invoices, payroll, materials, and subcontractors

3. EVM Metrics:

- CV = EV - AC (Cost Variance)

- SV = EV - PV (Schedule Variance)

- CPI = EV / AC (Cost Performance Index)

- SPI = EV / PV (Schedule Performance Index)

4. Material Waste Analysis – Measure input vs. output to reduce loss

5. Narrative Reporting – Document major changes, risks, delays, and cost-to-complete

🛠 Control Tools:

- Excel/ERP Tracker: Budget vs. Actual tracking

- EVM Dashboard: CPI/SPI visualization

- Subcontractor Log: Compare work vs. payment

- Material Log: Track usage and waste

- Cost History Record: Final cost archive for learning

📌 Tip: Build a Cost History Register post-project to record:

- Final costs by category

- Variance reasons

- Lessons learned
 ### E. Cost Forecasting – Archiving for Future Reference

✅ Objective:

Create a comprehensive, archived record of cost data for analysis and reuse.

📌 Included Records:
- Final budget & actuals

- Monthly EVM reports

- Risk reserve usage

- Subcontractor & procurement summaries

- Cash flow trend analysis

📌 Benefits:
- Improve future tenders & cost control

- Provide auditable financial documentation

- Aid project benchmarking and KPI development

✅ Output:

Digital + printed record, stored in the company’s cost archive.

 🎯 Summary Table: Cost Management Lifecycle
Phase Focus Output

Resource Planning Quantities & Unit Prices Total Project Cost

Estimating Time-phased + Risk Adj. Approved Project Budget

Budgeting Performance Tracking Variance Reports + Forecasts

Control Availability Optimization Loaded Schedule

Forecasting Historical Archiving Cost Knowledge Base