Running Head: Project Management 603482

Running Head Project Management

Project cost management comprises of several integrated processes. The processes ensure the project is completed per the scheduled time and the approved budget. The major tools used are resource planning, cost estimation, cost budgeting, and cost control. The primary focus of this paper is on cost estimation. Cost estimation is defined as the process of developing approximations of the costs of all the resources required to complete a project.

The process focuses on the major identification and consideration of the various cost alternatives that would reduce costs of operation and production of the project. The key terms include the inputs, the tools, techniques, and the outputs of the cost estimation process (Guide, 2001). The inputs of cost estimation include the work breakdown structure (WBS), resource requirements and rates, activity duration estimates, estimation of publications, historical information, charts of accounts, and risks. The WBS is used to ensure all the projected work is estimated and nothing is left out. The resource requirements define the components and elements of each resource. The requirements are quantified and estimated per the units needed.

The chart of accounts describes the coding structure of the company and therefore, each cost estimate must be assigned correct accounting category. The inputs give an overview of all requirements and the cost estimates of each item. This will ensure all the component of the project are quantified and estimated to propose the project runs smoothly and effectively (Guide, 2001). The tools and techniques of cost estimation include the analogous, parametric modeling, bottom-up, computerized tools, and other methods. The tools help in the preparation and the estimation of the costs of the project.

The project outputs from the cost estimation processes include the cost estimates, supporting details, and the cost management plan (Guide, 2001). The cost output shows the variances, and the impact estimates will have on the project before full adoption and approval. Cost Estimation Methods The commonly used techniques include the analogous, parametric modeling, and the bottom-up estimating techniques. Analogous Estimation (top-down estimator) is a cost estimation technique that uses size, weight or complexity of previous similar projects parameters to estimate the costs of the current project. It is effective in estimation where there is limited information on the project.

This process requires experts for effective utilization. The method is less accurate and costly as compared to other techniques (Guide, 2001). The impeding aspect of the method is that it needs a similar project to the current one, without this other project the method is considered invalid. The parametric estimating technique uses statistical or mathematical models to estimate the project costs. Unlike analogous estimators, the cost and the accuracy of this method vary substantially. Its accuracy depends on the accuracy of relations between the historical data and the other potential variables that compute project costs. It is very effective for large projects. Bottom-up estimating method estimates the components of the work. The composition of the individual work packages is summed for the entire project. The project is broken down into smaller components so that they can be estimated, because smaller units of a project are cost effective and accurate compared to working with large data sets. This process ensures every item is included in the project. This method is the most accurate; however, it is time-consuming (Guide, 2001).

Project cost issues include the supporting details, vendor bid analysis, causes of variation, value engineering, life cycle costing, activity based costing, and the time value of money. The supporting detail issues deal with the scope, methodology used in the estimate creation (Guide, 2001), challenges, and the array of the possible results. The control of this issue is critical and relies on project assumptions; invalid assumptions would misalign the activities of the project and result in more problems. To resolve the issues, clearer and accurate assumptions must be developed by including a wide number of professionals in the cost estimation process. Variations or details and activities are inevitable in a project. Variations are caused by either special or the normal causes along with other unpredictable elements. The variations increase the cost of projects, thus constraining the budget. The issue is solved using a statistical method known as the normal cause of variation curve. The optimum values for the estimate are picked. The life cycle of the project affects the cost estimation. This is because costs of funds ensure they run the project from commencement time to completion. The costs estimated must ensure it is in line with the life of the project. The vendor bid analysis verifies the reasonability of prices through the competing bidders. The lowest and most reasonable bidders are chosen to supply the project with its requirements. The quotations or tender notices should be available to potential suppliers only. The bidder should not only be chosen on the basis prices but also the ability to supply the requirements efficiently throughout the project. It is important to discount money value of the future costs and revenue for quick decisions (Guide, 2001). Inflation is a critical factor when estimating costs of projects. Net present value (NPV), the internal rate of return and the cost-benefits analysis can be used to evaluate the value that align with this issue.

Earned Value Management (EVM)

Earned value management (EVM) is a technique employed by project managers. This process measures and accounts for the performance of the project from initiation time to completion. The method is an integration of the scope, resources, and schedule of the project. The most common terms in the EVM include the planned value, earned value, and the actual costs (Stratton, 2007).

The planned value is the exact work to be executed and performed on the ground comprising of estimated costs. It gives a clear outline on the nature of the work to be performed by who, how, and how much each unit of work will cost. The earned value is the measurement of the accomplished work with its cost estimates. It is used to assess the performance of the completed work of the project. The actual costs are the precise costs that were used to complete the direct activities (Leonard, 2009).

This system will measure the totality of the costs incurred in completing work for a given period. References Guide, A. (2001). Project Management Body of Knowledge (PMBOK® GUIDE) . In Project Management Institute. Leonard, B. (Ed.). (2009). GAO Cost estimating and assessment guide: best practices for developing and managing capital program costs . DIANE Publishing. Pg. Stratton, R. W. (2007). Applying Earned Schedule Analysis to EVM data for Estimating Completion Date . AACE International Transactions, 04.1-04.4.

References

• Project Management Institute. (2001). A Guide to the Project Management Body of Knowledge (PMBOK® Guide): Fourth Edition. Newtown Square, PA: Author.
• Leonard, B. (2009). GAO Cost Estimating and Assessment Guide: Best Practices for Developing and Managing Capital Program Costs. DIANE Publishing.
• Stratton, R. W. (2007). Applying Earned Schedule Analysis to EVM Data for Estimating Completion Date. AACE International Transactions, 04.1-04.4.
• Kerzner, H. (2017). Project Management: A Systems Approach to Planning, Scheduling, and Controlling. Wiley.
• Heagney, J. (2016). Fundamentals of Project Management. AMACOM.
• PMI. (2017). Practice Standard for Scheduling. Project Management Institute.
• Fleming, Q. W., & Koppelman, J. M. (2010). Earned Value Project Management. Project Management Institute.
• Ph attending, L. (2007). Cost Management: A Strategic Emphasis. 2nd Edition. Pearson.
• Gido, J., & Clements, J. (2018). Successful Project Management. Cengage Learning.
• Meredith, J. R., & Mantel, S. J. (2014). Project Management: A Managerial Approach. Wiley.