5th Edition PMBOK® Guide—Memorizing the Processes (Step 3: Cost Knowledge Area)


1.   Introduction

After memorizing the 5 process groups (step #1) and the 10 knowledge areas (step #2), the next step in mastering the memorization of the processes is figuring out where the 47 project management processes fit in the matrix made by those process groups and knowledge areas.    The best way to do that is to first memorize the names and order of the processes by knowledge area.

Here are the 47 processes of project management; the chart indicates how many are in each knowledge area and process group.

Initiating Planning Executing Monitoring & Controlling Closing
Integration 6

1

1

1

2

1

Scope 6

4

2

Time 7

6

1

Cost 4

3

1

Quality 3

1

1

1

Human Resources 4

1

3

Communications 3

1

1

1

Risk 6

5

1

Procurements 4

1

1

1

1

Stakeholder 4      1

1

1

1

 47

2

24

8

11

2

2.  Cost Management knowledge area

I have discussed the integration, scope, and time knowledge areas (covered by Chapters 4, 5, and 6 of the PMBOK® Guide in previous posts; this post will cove the Cost Management knowledge area covered by Chapter 7 of the  PMBOK® Guide.    Here’s the portion of the above matrix of 47 processes that lists the processes in the Time Management knowledge area, which is covered in chapter 6 of the 5th Edition of the PMBOK® Guide.

Knowledge Area Total # of Processes Initiating Planning Executing Monitoring & Controlling Closing
Cost

4

3

1

Here’s a chart which gives description of the four processes that are included in the Cost Knowledge Area, 3 of which are in the Planning Process Group and 1 of which is in the Monitoring & Controlling Process Group.

Process Group Process Number Process Name Process Description
Planning 7.1 Plan Cost Management Establishes policies, procedures, and documentation for planning, managing, expending, and controlling project costs.
Planning 7.2 Estimate Costs Develops an approximation of the monetary resources needed to complete project activities.
Planning 7.3 Determine Budget Aggregates the estimated costs of individual activities or work packages in order to establish an authorized cost baseline.
Monitoring & Controlling 7.4 Control Costs Monitors the status of the project to update the project costs and manages changes to the cost baseline.

Let’s take a closer look at the process descriptions, taken from the PMBOK® Guide.   I think if you pay attention to the essence of what each process is, you will see how they flow from one to the other.

7.1  Plan Cost Management

Just like every other knowledge area, the first planning process is of the form “Plan X Management” where “X” is the name of the knowledge area.    In this case, the process is Plan Cost Management.    The purpose is to establish the guidelines and procedures for all of the rest  of the cost management processes.    The output of the processs is the Cost Management Plan, which is one of the knowledge area management plans that make up the overall Project Management Plan.

7.2 Estimate Costs

Costs are estimated by various methods, such as those based on

  • past projects if a similar project was done in the past, either by the organization itself or some other organization in the industry
  • top-down or bottom-up estimates, with top-down being the most general and approximate, and bottom-up being the most specific and accurate
  • averaging between pessimistic, neutral or optimistic assumptions regarding costs

You may note that the last estimate method, that of averaging between estimates based on various types of assumptions used to create them, is actually a form of risk management that is incorporated into cost management.    Although risk management is another knowledge area, the knowledge areas are thematically separate in theory, but in reality they intersect during a project, so that for example, when determining the budget like you do in the next process, you use as inputs the result of previous processes in cost management, but you also use results from other knowledge areas such as time management and risk management.

7.3 Determine Budget

Once you have the work packages (the smallest unit of deliverable on the project) broken down into units of work called activities (done in 6.2 Define Activities), these units can be estimated not just in terms of time (how many work periods or hours will it take to complete the activities) but also of cost (how much will those activities cost).    If you add these costs of individual up over the entire project, you get the project estimate.    To that you add contingency reserves that cover the cost of dealing with risks that might occur during the project; the project estimate plus the contingency reserves gives you the cost baseline.    This is what the progress of the project will be measured against during the next process in the monitoring & controlling process group.

7.4 Control Costs

In the monitoring portion of this process, you use tools such as earned value to find out whether your project is proceeding according to plan or not, specifically the cost baseline mentioned in the last process.    The output is the work performance information with respect to the cost baseline, which needs to get communicated to all parties concerned, not just on the project itself, but the various interested stakeholders (suppliers, customers, management, etc.).

What happens if the project is NOT going according to the cost baseline?    The first way to control the project is to suggest changes to the project that will make it conform once again to that cost baseline.    These change requests come in the form of corrective actions and preventive actions.    Corrective actions help make current activities conform to the cost baseline, and preventive actions help make future activities conform to the cost baseline.     These actions could include changing from higher-cost to lower-cost resources, or reducing the scope of the project.    In these two examples, other constraints on the project may be affected; switching to lower-cost resources may have an adverse affect on the quality of the product, and reducing the scope of the project may have repercussions on the stakeholder acceptance of the project.    So it is vital that any outputs of this process in the form of proposed changes to the project ts be analyzed through the change control process.

The second way to control the project is, if you realize during the course of the project that the project is so costing so much that you will never get it within the budget, then you may find that the problem was not with the project, but with the project budget being unrealistic in the first place.    Perhaps events have come up which were unexpected, or perhaps the assumptions you made in creating that budget turned out not to be true.    In any case, it is possible that the change request may not be to the project, but to the cost baseline.

The output of this controlling part of the process, then, are change requests that change either the project (to conform with the cost baseline), or to the schedule baseline itself.    In either case, these change requests get analyzed in the change control process, which is done under the Integration Knowledge Area under the process 4.5 Perform Integrated Change Control.

If the changes are implemented, then the monitoring & controlling process will be used periodically throughout the project to see if those changes did indeed work to bring the project and the cost baseline back in alignment.

3.   Conclusion

The next post will cover the next Knowledge Area, that of Quality Management (covered by Chapter 8).

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