It should answer the following questions:
1. How are project costs planned?
2. How are costs estimated?
3. How is a project budget created?
4. How are project costs controlled?
5. How is EVM used in this process?
Managing costs involves the planning and controlling processes of a business or a project. It includes such activities as planning, financing, controlling, estimating, managing, budgeting and funding costs to ensure that a project is completed within the budget already approved. Apparently, cost management covers a project’s entire lifecycle, right from its initial phase of planning through actual cost performance measurement to project completion.
How are project costs planned?
The planning of a project cost begins with the definition of the required resources that will be instrumental in completing the activities of the project right from the initial phase. A project manager can rely on historical information of similar projects and Work Breakdown Structures (WBS) to define the needed physical resources. Some of the key aspects to consider include the required materials, equipment, time and labor. With the knowledge of project quantities and types, it is easy to determine the related costs. Incidentally, project planning occurs in three main steps. These include scoping, scheduling and budgeting. Under scoping, the project manager carries out planning based structures, work based structure as well as estimating effort and duration. In scheduling, the manager is concerned with milestone planning, network diagram, Gantt chart and assigning resources. Meanwhile, in budgeting, the project manager focuses on resource plan, cost plan as well as payment plan (Lester, 2013).
How are costs estimated?
Cost estimating can be defined as a practice of calculating the total amount of money that will be needed to complete a particular project whose scope has already been defined. The estimated total cost of a project is necessary for the authorization of the budget of a project as well as managing its costs. The key components of cost estimates include direct costs and indirect costs. Direct costs are expenses that are exclusively payable to a particular project. They can include resource costs, equipment, fuel, employees’ wages and risks control expenditures. Conversely, indirect costs are those that are not billed directly to any particular project because they are shared across several projects.
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