Project Cost Management Fundamentals
📌 Project cost encompasses all resource expenses, including human resources (salaries, CTC, per diem), travel (airfare, visa, lodging), materials (software), and training, all leading to incurred costs.
⚠️ Cost estimation is challenging due to numerous influencing factors outside direct project control, such as delays and change requests from the customer, which can lead to cost escalation.
📊 The Cost Management Plan outlines procedures for planning, structuring, and controlling project costs, defining parameters like unit of measure, level of precision, and acceptable accuracy range (e.g., $\pm 5\%$).

Cost Estimation Techniques and Financial Concepts
🔢 Three levels of estimation accuracy exist: Rough Order of Magnitude (ROM) with $-25\%$ to $+75\%$ variance, Budget Estimate ($-10\%$ to $+25\%$), and Definitive Estimate ($-5\%$ to $+10\%$).
➡️ Analogous estimation uses analogies from past similar projects, while Parametric estimation applies historical rates (e.g., \X$ per cubic meter) and may adjust for inflation.
📉 Direct costs are tied specifically to the project (e.g., site travel, resource billing), while indirect costs are shared organizational overheads like electricity, security, and supporting management staff.
💸 Sunk costs represent money already spent; the dictum is "Don't cry over spilled milk"—it might be better to close a non-viable project rather than investing further.

Budget Determination and Reserve Analysis
💵 The Cost Baseline is established by aggregating activity cost estimates (often via Bottom-Up estimation) and adding the Contingency Reserve for known unknowns (identified risks).
💰 The Project Budget equals the Cost Baseline plus the Management Reserve, which covers unknown unknowns and is controlled by senior management, not the Project Manager.
🔄 Funding Limit Reconciliation involves aligning the project's planned fund outflow (resource needs, vendor payments) with the organization's internal funding constraints and cash flow limitations.

Cost Control and Monitoring
📊 Cost control involves monitoring the status against the Cost Baseline and managing changes efficiently, utilizing techniques like Earned Value Management (EVM) and forecasting.
🛑 The Cost Baseline is the authorized budget against which project cost performance is monitored, contrasting Actual Cost (AC) with planned spending.

Key Points & Insights
➡️ Project costs are internally funded by the organization; the customer payment (contract value) is a separate commercial discussion and does not alter the internal Project Cost or Budget.
➡️ Contingency Reserve is for known risks and is part of the Project Manager's Cost Baseline; Management Reserve is for unknown risks and is outside the PM's direct purview.
➡️ When determining costs, consider market conditions like Sole Source (single vendor, higher fee) versus Oligopoly (many vendors, higher negotiation control) for procuring specialized services.

📸 Video summarized with SummaryTube.com on Nov 14, 2025, 19:51 UTC