Project Manager manages Costs
How a Project Manager manages Costs
The raw material purchased at step one became the cost of goods sold when the client accepted the completion of the job. When the entry was made for the cost of goods sold and the finished goods inventory another entry would be made to record the sale (debit Accounts Receivable and credit Sales). At this stage labor and overhead costs have not been considered.
Estimate project costs to enable the project budget to be prepared within agreed tolerances
Estimating costs is the process of developing an approximation of the monetary resources needed to complete the project activities. Cost estimates are a prediction that is based on the information known at a given point in time. It includes the identification and consideration of cost alternatives to initiate and complete the project. Cost trade-offs and risks must be considered, such as make versus buy, buy versus lease and the sharing of resources in order to achieve optimal costs for the project.
Cost estimates are generally expressed in units of some currency (for example, dollars, euro, yen etc) although, in some instances, other units of measure, such as staff hours or staff days, are used to facilitate comparisons by eliminating the effects of currency fluctuations. Learn more about how project managers manage budgets by studying a Diploma of Project management (class information available here) or look at some of the other courses here
There is a distinct difference in between cost estimating and pricing. A cost estimate is the cost of the resources required to complete the project work. Pricing, however, includes a profit margin. A company performing projects for other organizations could do a cost estimate to see how much the project is going to cost to complete. Then, with this cost information, they will factor a profit into the project work. Estimating schedule activity costs involves developing an approximation of the costs of the resources needed to complete each schedule activity.
Estimating the cost and profit of a project:
In some cases, the estimator can use units of measure to estimate cost, such as staff hours or staff days, along with their cost estimates to facilitate appropriate management control.
Costs are not easily attributed to or estimated in many cases.
Costs are made up of:
- Direct costs include equipment purchased, personnel salaries, site preparation, and material and supplies.
- Direct benefits include items such as reduced personnel and hardware costs and improved data reliability.
- Indirect costs are those that we would normally associate with overhead expenses, such as personnel fringe benefits and utilities.
- Indirect benefits are perhaps the most difficult to quantify. An example of an indirect benefit is increased revenue resulting from improved customer support—such benefits are extremely difficult to measure.
- Costs include software purchases and insurance.
- Benefits include reduced equipment costs and increased revenue.
- Costs include productivity loss caused by low employee morale.
- Benefits may accrue from improved information.
Inputs
To complete the cost estimating process you will need to consider many input factors, such as enterprise environmental factors, organizational process assets, the project scope statement, any constraints, WBS and WBS dictionary, as well as the project management plan, risk register and human resources plan.
The cost estimating process considers enterprise environmental factors, such as:
- marketplace conditions—what products, services and results are available in the marketplace, from whom and under what terms and conditions
- commercial databases—resource cost rate information is often available from commercial databases that track skills and human resource costs and provide standard costs for material and equipment; published seller price lists are another source