All aspects of project management are extremely crucial, however, the project budget is undoubtedly the most scrutinize-able facet. We can define cost by using Google, we can define cost by using Webster,...I prefer to use a cliché! Cost is what it takes to get the job done! When one attempts to determine the budget of a project they must take several factors into consideration. First, one must create a plan managing cost (Schwalbe, 2014). This step seems basic, yet when we break this step down one can easily see its importance. For example, planning cost management involves determining the level of accuracy, control threshold, and reporting formats(Schwalbe, 2015). Determining level of accuracy is important because in this step a manager may allocate contingency funds for cost overruns.
A crucial factor when creating a budget is cost estimating. Cost estimating can be done from a bottom-up approach, top-down approach, or a parametric approach (Reincke, 2009). The later technique involves assigning fix cost values to specific tasks. For example, an electrician may estimate $25 per convenience receptacle during open wall construction versus $100 per convenience receptacle during remodel work.
Inflation and changes in scope and deadline can derail a project's budget. Changes in scope or an increase in scope can affect a budget in a positive or negative manner. The specifics of scope change must be analyzed very carefully. For example, if an IT project was originally slated to be functional with Windows Vista and then later changed to be functional with Windows 7 the cost impacts may be small since the two operating systems were created succinctly, However, if the IT project needed full backwards capability, then cost impacts could potentially be huge.
Cost variance is the planned costs minus actual costs (Schwalbe, 2014). According to the many case studies in our