Project Cost Management

2196 Words Mar 7th, 2015 9 Pages
Overview of Project Cost Management

According to an accounting textbook, cost is defined as a resource sacrificed or foregone to achieve a specific objective. It is something given up in exchange. It is necessary for project managers to understand project cost management since project costs money and consumes resources.

There are reasons for project cost overrun and these are as follows: * Not emphasizing the importance of realistic project cost estimates from the outset. IT project cost estimates are low to start with or based on unclear project requirements. * Many IT professionals think that preparing cost estimates is a job for accountants when in fact, it is a very demanding and important skill that project managers need
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It must be done to determine the net present value (NPV).

Internal rate of return (IRR) is the discount rate that makes NPV equal to zero. It is also called the time-adjusted rate of return.

Tangible costs or benefits are those costs or benefits that can be easily measured in pesos. While the intangible costs or benefits are the costs or benefits that are difficult to measure in monetary terms.

Direct costs are costs directly related to producing the products and services of a project. On the other hand, indirect costs are costs not directly related to a project’s products or services, but are indirectly related to performing the project.

Sunk cost is the money that has been spent in the past or considered gone.

The learning curve theory states that when many items are produced repetitively, the unit cost of those items decreases in a regular pattern as more units are produced. It should be used to estimate costs on projects involving the production of large quantities of items. It also applies to the amount of time it takes to complete some tasks.

Reserves are the currencies included in a cost estimate to mitigate cost risk by allowing for future situations that are difficult to predict. Contingency reserves are the amounts needed above the estimate which are for future situations that may be partially planned for and are included in the project

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