costmanagement

Cost management is the process of planning, estimating, budgeting, and controlling costs so that a project or operation can be completed within the approved budget. It aims to predict and monitor expenditures, allocate resources efficiently, and provide visibility into financial performance.

Key components include cost estimation (approximating the magnitude of costs), cost budgeting (aggregating estimates into a baseline), cost control (managing changes to the cost baseline), and cost forecasting and reporting to track performance over time. In project management, these activities are organized into the four processes of plan cost management, estimate costs, determine budget, and control costs. Techniques include bottom-up, analogous, parametric estimation, and activity-based costing, supplemented by life-cycle costing.

Earned value management provides a framework to measure cost performance by comparing earned value with actual costs and the baseline. Common metrics include cost variance, schedule variance, cost performance index, and the estimate at completion.

Applications span manufacturing, software development, construction, and public procurement. Effective cost management improves decision making, supports resource allocation, enhances financial risk management, and helps prevent overruns by identifying variances early.

Common challenges include scope changes, inaccurate cost data, inflation, and uncertainty in estimates. Success depends on governance, data quality, stakeholder alignment, and integration with risk management and procurement processes.