Project Cost Management

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Project Cost Management

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The Importance of Project Cost Management

IT projects have a poor track record for meeting budget goals.

The CHAOS studies found the average cost overrun (the additional percentage or dollar amount by which actual costs exceed estimates) ranged from 180 percent in 1994 to 56 percent in 2004; other studies found overruns to be 33-34 percent.

What is Cost and Project Cost Management?

Cost is a resource sacrificed or foregone to achieve a specific objective or something given up in exchange

Costs are usually measured in monetary units like dollars

Project cost management includes the processes required to ensure that the project is completed within an approved budget.

Project Cost Management Processes

Estimating costs developing an approximation or estimate of the costs of the resources needed to complete a project

Determining the budget allocating the overall cost estimate to individual work items to establish a baseline for measuring performance

Controlling costs controlling changes to the project budget

Figure 7-1. Project Cost Management Summary

Basic Principles of Cost Management

Most members of an executive board better understand and are more interested in financial terms than IT terms, so IT project managers must speak their language

Profits are revenues minus expenditures

Profit margin is the ratio of revenues to profits

Life cycle costing considers the total cost of ownership, or development plus support costs, for a project

Cash flow analysis determines the estimated annual costs and benefits for a project and the resulting annual cash flow

Table 7-1. Cost of Downtime for IT Applications

What Went Right?

Many organizations use IT to reduce operational costs

Technology has decreased the costs associated with processing an ATM transaction:

In 1968, the average cost was $5

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