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Project Cost management for Project Managers based on PMBOK


ADVISORY ARTICLE

By Dr. T D Jainendrakumar

Madhyapradesh, India

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The Cost Management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. Project managers must make sure that their projects are well defined, have accurate time and cost estimates, and have a realistic budget that they were involved in approving. Costs are usually measured in monetary units like dollars.

Before going to this knowledge area we need to familiar with some of the definitions or terms used in Cost management.

Definitions

Profit = Revenue – Costs

Profit Margin = Profit / Revenue

Cash flow refers to the movement of cash into or out of the project.

Direct costs are costs that can be directly related to producing the deliverable of the project: salaries, cost of hardware & software purchased specifically for the project, etc.

Indirect costs are costs that are not directly related to the deliverable of the project, but are indirectly related to performing the project, e.g. cost of electricity, Internet, rent and office supplies.

Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict

Sunk cost is money that has been spent in the past; when deciding what projects to invest in or continue, you should not include sunk costs in the project budget.

  • To continue funding a failed project because a great deal of money has already been spent on it and it is not a valid way to include that money to the revised project budget to make a failed project successful, sunk costs should be forgotten

Variable Costs: change with the amount of production (cost of material).

Fixed Costs: do not change with production (rent, setup costs, etc.)

Net present value: the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of money to appraise long-term projects. Higher the NPV is better.

Discount rate: Minimum acceptable rate of return on an investment.

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About the Author

 

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Dr. T D Jainendrakumar

India

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Dr. T D Jainendrakumar, PhD, MCA, PMP is an international PMP trainer, EX-Scientist/Principal Scientist/Joint Director, N.I.C, Ministry of Information and Communication Technology, Government of India, Madhyapradesh. He has over 25 years’ of extensive experience in the areas of IT Project management in e-governance at Ernakulam District Collectorate, District Courts of Kerala, Central Administrative Tribunal Ernakulam, Rajeev Gandhi National Drinking Water Mission (400 crore project), New Delhi and Principal Systems Analyst in National Informatics Centre, Madhya Pradesh State Centre especially in the following areas of specialization: IT practice management (Project Management Methodologies, Tools and techniques, Standards & Knowledge);IT Infrastructure Management (Project Governance, Assessment, Organisational Instructions & Facilities and Equipments); IT-Resource Integration Management (Resource Management, Training & Education, Career Development & Team Development);IT-Technical Support (Project Mentoring, Project Planning, Project Auditing and Project Recovery); and Business Alignment Management (Project Portfolio management, Customer Relationship Management, Vendor Management & Business performance management).

Teaching Project Management & ICT Subjects for professionals and post graduates. Master of Computer Applications (MCA), a 3 year post graduate course dealing with software Engineering and Project Management from a premier institute Anna University Campus. He is a PMP of PMI USA since 2008. Resource person of PMI, you can see his name in the PMBOK 4th edition and 5th edition published by PMI, USA under the list of contributors for project management. Scored 4.11 out of 5 in the project management (2005) examination conducted by brainbench.com, secured a Masters Certificate in Project Management, and is one among the top scorers (First in India and 3rd position in the world in the experienced category).

Published many international journal papers in PM World Today having cumulative index factors more than 2 in the areas of specialization of Project Management & Information Technology.

Holding a Hon’ Doctorate from Cosmopolitan University, USA in Project Management & Information Technology. Presently working as an independent project management consultant and an International Project management (PMP) trainer. Provided PMP training to the senior officials of big MNCs like M/S. Earnest & Young and He is a visiting professor and sharing his knowledge and experience and to handle classes in Management Information Systems, Quality Management, Project Management and Software Engineering to some of the big universities. He can be contacted at [email protected].

To view other works by this author, visit his author showcase in the PM World Library at http://pmworldlibrary.net/authors/t-d-jainendrakumar/