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CHAPTER 5.1

CONCEPTS AND ISSUES OF PROJECT
BUDGETING AND COST CONTROL

Who Needs Cost Management?

In every firm, cost management will exist in some form, usually under the control
of the finance function. Our problem as project managers is that often that form
is not consistent with the project management function, and that the cost data
cannot be integrated with the other project data. As a result, many of the critical
management questions concerning cost go unanswered.

For instance, if the monthly accounting report notes that Omega Project has
accumulated costs of $123,999, is this good or bad? Without integrating the ac-
counting data with the other project data, much of the data is worthless.

How do we go about answering such common questions as:
• How much are you going to spend?
• How much did you spend? Is this good or bad?
• How much will you have spent when the project is over? Is this good or bad?
• If I’m in trouble on costs, what can I do to turn things around?
• How shall the costs be distributed?
• How can I control my resource costs?
Effective cost management must address such questions. This requires an in-
tegrated schedule and budget plan. It also requires integrated participation by
leaders of the projects, resources, and financial disciplines.

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