project cost in business plan example

How Much Does it Cost to Start a Business?

8 min. read

Updated April 25, 2024

What will it cost to start your business? This is a key question for anyone thinking about starting out on their own. You’ll want to spend some time figuring this out so you know how much money you need to raise and whether you can afford to get your business off the ground.

Most importantly, you’ll want to figure out how much cash you’re going to need in the bank to keep your business afloat as you grow your sales during the early days of your business. 

Typical startup costs can vary depending on whether you’re operating a  brick-and-mortar store, online store, or service operation . However, a common theme is that launching a successful business requires preparation.

And while you may not know exactly what those expenses will be, you can and should begin researching and estimating what it will cost to start your business.

• How to determine your startup costs

Like when developing your  business plan , or  forecasting  your initial sales, it’s a mixture of  market research ,  testing , and informed guessing. Looking at your competitors is a good starting point. Once you feel your initial estimates are in the ballpark, you can start to get more specific by making these three simple lists.

1. Startup expenses

These are expenses that happen before you launch and start bringing in any revenue. Here are some examples:

• Permits and Licenses: Every business needs a license to operate, just like a driver needs one to drive. Costs vary depending on industry and location.
• Legal Fees: Getting your business structure set up (sole proprietorship, LLC, etc.) might involve consulting a lawyer and at least will involve the basic business formation fees.
• Insurance: Accidents happen, and insurance protects your business from unforeseen bumps.
• Marketing and Branding: The ways to spread the word about your product or service. They could involve creating a website, creating business cards, or promoting social media.
• Office Supplies : Pens, paperclips, that all-important stapler – the essentials to keep your business humming.
• Rent/Lease: If you need to rent space for your business before you start selling, include those expenses in your list as well.

2. Startup assets

Next, calculate the total you need to spend on assets to get your business off the ground. Assets are larger purchases that have long-term value. They’re typically significant items that you could resell later if you needed or wanted to.

Here are a few examples:

• Equipment:  Think ovens for a bakery, cameras for a photography business, or computers for a tech startup.
• Inventory:  If you’re selling products, you’ll need to stock up before opening your doors (or your online store).
• Furniture and Decorations:  Desks, chairs, that comfy couch in the waiting room – creating a functional and inviting workspace might involve some upfront investment.
• Vehicles: If your business requires a vehicle to deliver your product or service, be sure to account for that purchase here.

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Why separate assets and expenses?

There’s a reason that you should separate costs into assets and expenses. Expenses are deductible against income, so they reduce taxable income. Assets, on the other hand, are not deductible against income.

By initially separating the two, you potentially save yourself money on taxes. Additionally, by accurately accounting for expenses, you can avoid overstating your assets on the balance sheet. While typically having more assets is a better look, having assets that are useless or unfounded only bloats your books and potentially makes them inaccurate. 

Listing these out separately is good practice when  starting a business  and leads into the final piece to consider when determining startup costs. 

3. Operating Expenses

Finally, figure out what it’s going to cost to keep your doors open until sales can cover expenses. Create a list that estimates monthly expenses, such as:

• Payroll (including your own salary)
• Marketing and advertising
• Loan payments
• Insurance premiums
• Office supplies
• Professional services
• Travel costs
• Shipping and distribution

Then, based on your revenue forecasts , calculate how many months it will take before your sales can cover all those monthly expenses. Multiply that number of months by your monthly operating expenses to determine how much you’re going to need to cover operating expenses as your business starts.

This number is often called “ cash runway ” and is a critical number – you need enough cash to fund those early red ink months. This number is how much cash you need to have in your checking account when you open your doors for business.

Calculating how much startup cash you need

To figure out how much money you need to start your business, add the asset purchases, startup expenses, and operating expenses over your cash runway period. This is your total startup costs, and it’s better to overestimate than underestimate these costs.

It often makes sense to invest the time to build a slightly more detailed starting costs calculation. Assuming you start making some sales and those sales grow over time, your revenue will be able to help pay for some of your operating expenses. Ideally, your sales contribute more and more over time until you become profitable.

To do a more detailed calculation, you’ll want to invest the time in a detailed financial forecast where you can experiment with different scenarios. If you do this, you’ll be able to see how much it will cost to start your business with different revenue growth rates. You’ll also be able to experiment with different funding scenarios and what your business would look like with different types of loans.

• Funding Starting Costs

You can cover starting costs on your own, or through a combination of loans and investments.

Many entrepreneurs decide they want to raise more cash than they need so they’ll have money left over for contingencies. While that makes good sense when you can do it, it is difficult to explain that to investors. Outside investors don’t want to give you more money than you need, because it’s their money.

You may see experts who recommend having anywhere from six months to a year’s worth of expenses covered, with your starting cash. That’s nice in concept and would be great for peace of mind, but it’s rarely practical. And it interferes with your estimates and dilutes their value.

Of course, startup financing isn’t technically part of the starting costs estimate. But in the real world, to get started, you need to estimate the starting costs and determine what startup financing will be necessary to cover them. The type of financing you pursue may alter your startup or ongoing costs in a given period, so it’s important to consider this upfront.

Here are common financing options to consider:

• Investment : What you or someone else puts into the company. It ends up as paid-in capital in the  balance sheet . This is the classic concept of business investment, taking ownership in a company, risking money in the hope of gaining money later.
• Accounts payable : Debts that are outstanding or need to be paid after a certain time according to your balance sheet. Generally, this means credit-card debt. This number becomes the starting balance of your balance sheet.
• Current borrowing : Standard debt, borrowing from banks,  Small Business Administration , or other current borrowing.
• Other current liabilities : Additional liabilities that don’t have interest charges. This is where you put loans from founders, family members, or friends. We aren’t recommending interest-free loans for financing, by the way, but when they happen, this is where they go.
• Long-term liabilities : Long-term debt or long-term loans.
• Other considerations for estimating startup costs

Pre-launch versus normal operations

With our definition of starting costs, the launch date is the defining point. Rent and payroll expenses before launch are considered startup expenses. The same expenses after launch are considered operating or ongoing expenses.

Many companies also incur some payroll expenses before launch because they need to hire people to train before launch, develop their website, stock shelves, and so forth.

Further Reading: How to calculate the hourly cost of an employee

The same defining point affects assets as well. For example, amounts in inventory purchased before launch and available at launch are included in starting assets. Inventory purchased after launch will affect  cash flow , and the balance sheet; but isn’t considered part of the starting costs.

So, be sure to accurately define the cutoff for startup costs and operating expenses. Again, by outlining everything within specific categories, this transition should be simple and easy to keep track of.

Your launch month will likely be the start of your business’s fiscal year

The establishment of a standard fiscal year plays a role in your analysis. U.S. tax code allows most businesses to manage taxes based on a fiscal year, which can be any series of 12 months, not necessarily January through December.

It can be convenient to establish the fiscal year as starting the same month that the business launches. In this case, the startup costs and startup funding match the fiscal year—and they happen in the time before the launch and beginning of the first operational fiscal year. The pre-launch transactions are reported as a separate tax year, even if they occur in just a few months, or even one month. So the last month of the pre-launch period is also the last month of the fiscal year.

• Aim for long-term success by estimating startup costs

Make sure you’ve considered every aspect of your business and included related costs. You’ll have a better chance at securing loans, attracting investors, estimating profits, and understanding the cash runway of your business.

The more accurately you layout startup costs and make adjustments as you incur them, the more accurate vision you’ll have for the immediate future of your business. 

Clarify your ideas and understand how to start your business with LivePlan

Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.

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Project Cost Management: The Basics, Steps, and the Main Goals

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When your business takes on a new project, the success or failure of your work depends on the efficiency of your project management efforts — and the most important element of your project management efforts is handling project management costs .

What’s more, inaccurate project cost estimation can be one of the main reasons why projects go over budget or totally fail.

To be able to complete your project successfully, you need to be able to control, analyze, and forecast the costs more precisely, assess risks, and prevent bad outcomes.

To help you stay within your project budget, we’ll explain the following:

• The definition of project cost management,
• The main goals of project cost management,
• The way to calculate project management costs, and
• The 4 steps in project cost management.

We’ll also cover some frequently asked questions about project cost management, so stay with us.

What is project cost management?

Project cost management is a process that involves the estimation and allocation of the project budget and subsequent costs, as well as project cost control.  

Project cost management allows you to have a clear picture of the financial status of your project. It helps project managers predict future expenses and act accordingly.

Some of the benefits of project cost management are:

• Decreased expenses,
• Increased efficiency, and
• Progress and performance tracking. 

Important project cost management terms

To make it easier for you to understand some important terms related to project cost management, we’ll explain them in more detail.

In this section, we’ll explain the following terms:

• Project costs, and
• The project budget.

What are project costs?

Overall, project costs are the total funds needed to monetarily cover and complete a business transaction or work project.

Project costs involve:

• Direct costs — Direct costs are those directly involved with the project and necessary in order to complete said project.
• Indirect costs — Indirect costs for a project are costs that do not directly lead to project completion but are still vital for the company or individual working on said project. As such, they are a part of individual project costs.

Direct costs include the cost of:

• Professionals working on the project — i.e. company employees or outsourced contractors and freelancers.
• Equipment — i.e. the tools and machines the employees, contractors, or freelancers use to finish the project.
• Materials — i.e. physical materials (that are not tools or machines) needed to finish the project.
• Project management tasks — i.e. all tasks meant to facilitate project completion before a given time, and according to specific requirements.
• Engineering tasks (if needed) — i.e. all research, design work, and installation of equipment made in order to finish the project.
• Transportation (if any) — i.e. custom rates, bringing the finished product to retailers, etc.

Indirect costs include the cost of:

• Operating overhead expenses — i.e. office rent, utilities, insurance, general office equipment, and materials.
• Target annual salary — i.e. the clean profit the company or individual wants to make, in addition to the money needed to cover overhead and other expenses.

💡 Clockify Pro Tip

Want to know more about how to calculate your ideal target annual salary and your average operating overhead-expenses? You can do it with our handy calculator:

• Hourly Rate Calculator

Handling direct and indirect costs and keeping them within the budget is essential for smooth project cost management. 

What is the project budget?

The project budget is the total amount of money planned and allocated for the execution of a project within a specific time period (deadline). 

The project budget is based on the initial cost estimate of the project and usually depends on the efficacy of the project cost control. There are 4 main project budget management techniques:

• Incremental — You track time on your tasks within a project and gain an understanding of the actual time you’ll need to finish said tasks in the future.
• Activity-based — You calculate your ideal revenue , consider how many projects you need to work on during the year and their prices to reach said revenue, and determine each individual project budget by calculating the costs for that project.
• Value proposition — You add items to your budget based on the value they bring to your project. If an item/task/professional is important for the project, they get added to your planned budget.
• Zero-based — This budget management technique is similar to the value proposition. The difference (and the condition for the item to be included in the budget) is that the item must be justified and proven useful for each new business period and not just one project. All items that are important for a new business time period are approved for the budget.

To learn more about the best ways to manage all costs related to a project budget, take a look at these budget cost management techniques. 

Budget cost management techniques

In order to make sure you stick to the budget (and cut the costs where you can), you should:

• Train employees to be efficient with their time — Following the right time management tips and increasing the right time management skills will improve your team’s performance, and reduce the risk of a project falling through, which will, in turn, help you save costs.
• Make use of the latest technology — Apart from a project management tool, try introducing other business tools to help automate employees’ work in a cost-effective manner.
• Outsource tasks — Hiring a reputable professional from outside the company to handle a portion of your work (business-related or project-specific work) will help you cut costs.
• Cut down your overhead expenses — Insurance is a non-negotiable overhead expense, but there are some overhead expenses you could work (and live) without. Examples include a stylish office in the city center for your freelance work or fashionable but otherwise less than useful utilities. Cut what you can to make the most of your budget.

The importance of cost management in projects and the listed cost management techniques is almost self-explanatory — when you aim to manage your costs to adhere to the set project budget, you’re essentially letting the set budget guide your decisions. 

If you don’t aim to manage your project costs, they’ll likely spiral out of control, and your entire project might fall apart due to faulty management.

What are the main goals of project cost management?

The benefits of proper project cost management stem from the main goals of project cost management , which include:

• Focusing on the project delivery based on the value criteria established at the start of the project,
• Monitoring and documenting all transactions, payments, and project-related changes, and
• Making efforts to reduce business costs overall.

In general, the main purpose of proper project cost management is to help project managers successfully complete the project, but also reduce unnecessary project expenses. A project can only be truly successful if you track costs and stay within the project budget. 

How to calculate project management costs

When determining project management fees for its major facilities projects, Northwestern University adhered to the following principle — the larger the project, the lower the cost of managing the project compared to the total cost of the project itself.

To see how they calculated their project management expenses according to the size of their projects, take a look at the table below.

As projects get more expensive and larger, the costs of project management are gradually decreasing — according to a graduated project management fee system they use.

Their fee is based on the project budget that was determined at the beginning of the project itself, and it should also remain the same throughout the duration of the said project.

In essence, your project management costs will depend on your project size, but they will also depend on the price of the project management software you choose to use, which also has to be included in the budget.

What are the 4 steps in project cost management?

To manage your project costs in the best possible way, follow these 4 simple steps:

• Plan the resources,
• Estimate the cost,
• Determine the cost budget, and
• Control the costs.

Step #1: Plan the resources

Resource planning includes reviewing the project scope and then figuring out future resources — these resources are necessary to complete the project. Project scope is a project outline that determines all aspects of the work that needs to be done in order to complete the project.

Resources for the project can include:

• People that are needed to execute the project,
• Certification,
• Equipment and tools, and
• The time needed for each task.

Everything that enables you to complete the project successfully is considered a resource.

To create a comprehensive resource plan, you have to define: 

• How many people will be needed for a project,
• What type of experience they need to possess, 
• What type of equipment will be needed, and 
• What the exact timelines for each of the activities are.

However, regardless of the effort you put into resource planning, there’s always the possibility of some unavoidable obstacles arising. In case this happens, you need to take into account the possibility of certain resources becoming unavailable.

It’s also important to track resource allocation . Tracking resource allocation provides project managers with a clear overview of what needs to be done and helps them facilitate the delegation of tasks.

Once we have a complete inventory of all the resources we need, we’ll be able to estimate the costs, as we can see in the next step.

Step #2: Estimate the cost of resources

As soon as you’re done crafting your resource plan, you’ll need to estimate all the costs for the previously allocated resources. 

Determining the cost of each resource and taking variable factors into consideration is vital for every decision-making process that involves supplies, tools, and the overall project budget. 

After you’ve gathered all the necessary pricing information, you’ll get an estimated calculation of your expenses.

To make sure you’ve obtained the most accurate numbers, you can: 

• Track your project time and expenses , 
• Monitor the activities of everyone involved in the project, and 
• Get to see where the money is going in real-time.

To learn more about the cost budget, let’s get right to the third step. 

Step #3: Determine the cost budget

Determining the cost budget is the core of project cost management. 

Simply put, a cost budget is a sum of all the costs needed for all the tasks and milestones that the project aims to fulfill. Knowing your cost budget helps you manage the actual costs compared to the estimated ones. 

Determining the cost budget highly depends on the project schedule. Also, being aware of task durations and milestones makes it easier to track project deadlines. 

Having a cost budgeting strategy also allows project managers to make more accurate budget estimates for future stages or maybe even prevent overruns. 

Step #4: Control the costs

Controlling your costs means keeping an eye on all the costs as the project progresses, and recording them. 

This process allows you to take appropriate action when there are certain adjustments, such as changes in the prices of materials or services. Cost control is important because it helps you reduce costs and ensures your project remains profitable.

To take control over the costs in the best possible way, here’s what you should do:

• Ensure the project stays within scope,
• Collaborate with stakeholders,
• Follow the schedule and manage your time, and
• Use project management software.

Is it hard for you to choose the right project management app with so many project management apps available? To help you choose the most suitable tool for your needs that’ll actually boost your team’s performance, take a look at our guide:

• The definitive guide to best project management tools

Frequently asked questions about project cost management

In case you still have your doubts about project cost management, let’s go over some of the frequently asked questions and look into everything you need to know about:   

• Project management software, and
• Project cost estimation.

Do you need project management software?

One of the more important project costs in project management is project management software — and one of the more important project management questions revolves around project management software cost.

Of course, the entire purpose of using project management software is to speed up the project management process and make it more:

• Precise, 
• Accurate, and 
• Cost-effective. 

So, by using such software, you’re essentially saving money in the long run.

There are many project management tools available for project planning, but finding the right project management software that’s also easy to use can simplify the process of project tracking.

In a project management tool such as Plaky, for example, you can: 

• Collaborate with teammates, 
• Keep all tasks in one place, and 
• Track the progress of your projects.

While you should include the cost of project cost management software in your project planning, there are some other options like Plaky where you can use a large number of features, and all for free.

 💡 Clockify Pro Tip

Are you looking for some other useful techniques and tools to help you manage your projects better? Check out our blog post below:

• Project management techniques and tools

What is project cost estimation?

Project cost estimation is the process of predicting the: 

• Cost, 
• Quantity, and 
• Price of all the resources you need in order to finish the project. 

However, considering that the estimation is made before project completion (meaning it cannot account for unexpected expenses and changes), it is often uncertain and serves only as a starting point for setting a project budget and handling cost management.

When estimating your project costs, make sure to cover the following:

• Be precise — Try not to overestimate or underestimate your costs. Make the estimation in relation to what you’re looking to accomplish, your resources, and time period.
• Be accurate — While your consultants, workers, and freelancers are essential for your project’s success, the most important element in your project estimation is the time you’ll spend on it. So, it’s important that you track time on all your projects. This way you’ll get an accurate number of hours for each project type, so it’ll be easier to estimate the time needed to finish projects in the future.
• Understand the project requirements (and limitations) — Be careful not to underestimate the time, the number of team members, and the monetary resources you need overall to bring your project to an end.

Different professionals approach project estimation in various ways, so let’s see what types of cost estimates you can use to manage your project. 

Types of cost estimates in project management

There are several effective types of cost estimates in project management:

• Expert judgment — This estimation is most suitable for seasoned professionals as it is based on the previous knowledge and experience of the estimator.
• Cost of quality — This estimation is based on the money spent to manage potential failures and prevent poor project quality. It helps you minimize losses and analyze where you can save money.
• Vendor bid analysis — This estimation is mainly used at public project tenders as it requires you to analyze your competition and guess their bids before making your own.
• Using a project estimation software — This estimation relies on numbers provided by a specialized project estimation software. 
• Reserve analysis — This estimation is used to accommodate potential project risks and the reserve resources that need to be secured to accommodate said risks.
• Three-point estimates — This estimation includes the average estimation of the most likely estimation (A), an optimistic estimation (B), and a pessimistic estimation (C). For example: A = $60,000, B = $55,000, C = $80,000. According to the formula, (B + 4A + C)/6, the three-point estimate for the example estimates is $62,000.
• Analogous estimating — This estimation is based on data compiled from previous similar projects. It is usually used in the early stages of a new project.
• Parametric estimating — This technique is similar to the analogous estimating technique, the difference being that the historical data used is based on the relationship between various project variables.
• Bottom-up estimating — This estimation is calculated by comparing the current project with the work packages you’ve already established. After that, you make your estimate for the current project.

How best to estimate a project — example

We’ll show you how to estimate a project through the project cost estimation example . This example takes into account: 

• The professionals working on the project, 
• Their hourly rates, 
• The materials they use, as well as 
• The time they need to finish specific tasks.

Here’s what you need to do if you want to estimate your project:

• List all professionals,
• List their respective hourly rates,
• List all the physical resources you’ll need, including all equipment and materials,
• Make an estimation of the time you’ll need to finish the project, and
• Calculate the final price.

Now you’ve estimated that your team members will spend 300 hours in total on the project-related tasks they were assigned to — more specifically:

• Lisa Johnson (hourly rate: $45) will spend 30h on Task 1
• John Bautista (hourly rate: $45) will spend 70h on Task 2
• Katie Stark (hourly rate: $50) will spend 50h on Task 3
• Austin White (hourly rate: $40) will spend 120h on Task 4
• Thomas Clark (hourly rate: $50) will spend 30h on Task 5

Here’s the formula for the total 300 hours estimated:

Hourly rate x the time spent working (for each employee)

Here is what the equation looks like:

$45 x 30 + $45 x 70 + $50 x 50 + $40 x 120 + $50 x 30 =  $13,300

As we mentioned, apart from including your employees, you also need to take into account the clean costs of your materials and equipment. When it comes to materials, you’ll have to include the number of units but also the price per unit.

Moreover, when you compare your planned budget with your actual expenses, you’ll see the difference between those two.

Finally, if you track your progress, you’ll be able to change your schedule to allow more time for certain tasks and track when the planned budget is about to hit the limit.

Use Clockify to track budgets and set time estimates

Tracking your time and regularly monitoring budgets can significantly contribute to effective project cost management. 

But you probably knew that already.

So, what are you missing?

Well, there’s a way you can keep tabs on your budget by using project-tracking software like Clockify.

With this productivity powerhouse under your belt, you can easily set project budget by following these steps:

• Go to one of your project’s settings tab,
• Select Project budget under Estimate, and
• Insert your cost estimate into the Manual space.

So, if the project runs into the risk of exceeding its budget, you can take proactive measures to address the issue.

Equally important, you can set up alerts when you’re close to going over budget.

You just need to visit your Workspace settings, choose Alerts, and add the criteria you like for getting a notification from Clockify. It can be something like: “If Project X reaches 90% of estimate, alert Workspace admin.”

Speaking of estimates, did you know you can even set up time estimates for all your projects? 

Estimates are useful because they help you determine whether to charge more (or less) for your projects. For example, as soon as you compare estimated versus tracked time you spent on a particular project, you can get a better idea of how long a project of that sort takes to implement. As a result, you’ll be better able to:

• Create better quotes for future clients, and 
• Set more accurate budgets.

Get your team and projects up to speed by introducing a piece of project tracking software.

Marija Kojic is a productivity writer who's always researching about various productivity techniques and time management tips in order to find the best ones to write about. She can often be found testing and writing about apps meant to enhance the workflow of freelancers, remote workers, and regular employees. Appeared in G2 Crowd Learning Hub, The Good Men Project, and Pick the Brain, among other places.

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Mastering Project Cost Management: Best Practices for Every Industry

Keeping expenses under control is one of the most crucial aspects of project management. Expenses have the ability to drive up prices faster than you anticipate, particularly in complex projects. To keep their budgets on track, project managers must practice proactive cost management.

Understanding Project Cost Management

At the heart of every successful project lies a critical component: project cost management. This multifaceted discipline is more than just keeping an eye on expenses; it’s about strategically guiding a project through its financial journey from conception to completion. Project cost management encompasses a range of activities designed to ensure that a project is completed within the approved budget.

The Four Pillars of Project Cost Management

Mastering project cost management is akin to a balancing act, where the project manager must juggle various elements to keep the project within budget and on track. The four pillars of project cost management—resource planning, cost estimating, cost budgeting, and cost control—serve as the foundation for a successful project financial strategy.

• Resource Planning : This is the first step in project cost management, where you determine what resources (people, equipment, materials) are needed to complete the project. It’s about allocating the right resources at the right time to avoid bottlenecks and minimize costs. For instance, using Creately’s visual kanban project management feature can help in mapping out resource allocation and availability. For more details check out our guide on resource planning.

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Cost Estimating : After planning resources, the next step is to estimate the costs associated with them. This involves predicting the expenses for resources and other project-related costs. Accurate cost estimating is crucial for setting a realistic budget and is a skill that improves with experience and the use of the right tools.

Cost Budgeting : Once you have an estimate, you can create a cost budget. This is a financial plan for the project that outlines expected costs and revenue. It serves as a benchmark against which actual performance can be measured. Effective project budgeting ensures that the project remains financially viable from start to finish.

• Cost Control : The final pillar is cost control, which involves monitoring project expenses in real-time and making adjustments as needed to stay within budget. Real-time cost tracking, a feature of Creately, allows for immediate visibility into cost variances and enables proactive management of the project budget.

Integrating these components into a cohesive cost management plan is essential. Each component plays a vital role throughout the project lifecycle, from the initial planning stages to the final project closeout. By effectively managing project costs, you can ensure that your project is delivered on time, within scope, and on budget, ultimately contributing to the overall success of the project.

The Importance of Real-Time Cost Management

In the dynamic landscape of project management, maintaining budget adherence is a critical challenge. Real-time cost tracking is not just a feature; it’s a strategic advantage that can make or break the success of a project. Here’s how it plays a pivotal role:

Immediate Visibility : With real-time cost tracking, project managers gain immediate visibility into where every dollar is going. This transparency allows for proactive adjustments before costs spiral out of control.

Data-Driven Decisions : Access to up-to-the-minute financial data empowers managers to make informed decisions. Whether it’s reallocating resources or postponing non-critical tasks, these decisions are crucial for staying within budget.

Early Warning Signs : Real-time tracking acts as an early warning system, highlighting cost overruns as they happen. This enables teams to address issues promptly, rather than being surprised by them at the end of a project cycle.

Enhanced Accountability : When team members know that costs are being monitored in real time, it fosters a culture of accountability. This can lead to more mindful spending and efficient work practices.

Challenges in Project Cost Management

Project cost management is a critical aspect of project management that, when not handled properly, can lead to significant challenges. Here are some common obstacles that project managers face:

Inaccurate Cost Estimates : Without precise forecasting, projects can quickly exceed their budgets, leading to cost overruns.

Lack of Real-Time Data : Managing project costs effectively requires up-to-date information, which can be hard to obtain without the right tools.

Complex Resource Allocation : Balancing the costs of labor, materials, and equipment is a delicate task that can easily go awry.

Change Management Difficulties : Projects are dynamic, and costs can escalate if changes are not managed efficiently.

The consequences of poor project cost management practices are severe, including blown budgets, decreased profitability, and even project failure. Understanding the complexity of cost management across diverse industries is essential, as each industry has unique cost drivers and constraints. To navigate these challenges, project managers can leverage tools like Creately, which offers features such as real-time collaboration and visual Kanban project management, aiding in better resource planning and cost control. With such tools, project managers can improve their project cost estimation, budgeting, and tracking, ultimately leading to more successful project outcomes.

Strategies to Overcome Project Cost Management Challenges

Improving Project Cost Estimation Accuracy Accurate cost estimation forms the foundation of sound project budgeting and resource allocation. To enhance estimation accuracy, project managers should employ a combination of proven methodologies and data-driven approaches.

Historical Data Analysis : Reviewing past projects' cost data and performance metrics provides valuable insights into similar projects, enabling more informed estimations. Parametric Estimating: Utilizing mathematical models and algorithms to extrapolate costs based on specific project parameters and historical data points.

Expert Judgment: Consulting subject matter experts and experienced stakeholders to validate assumptions and identify potential cost drivers and risks.

Contingency Planning: Incorporating contingency reserves to account for unforeseen events and uncertainties that may impact project costs.

Maintaining Effective Cost Control Throughout the Project

Effective cost control measures are essential for monitoring project expenditures and ensuring alignment with budgetary constraints. Key techniques for maintaining cost control include: Regular Monitoring and Reporting: Implementing robust monitoring mechanisms to track actual costs against budgeted allocations and identifying variances promptly. This can be done through visual frameworks like a Work Breakdown Structure.

• Change Management Processes: Establishing clear change control procedures to evaluate and approve modifications to project scope, schedule, and budget, thereby mitigating scope creep and cost overruns.
• Stakeholder Communication: Maintaining transparent communication channels with project stakeholders to keep them informed about cost-related issues, risks, and mitigation strategies.
• Utilizing Technology to Enhance Cost Management Processes
• Advancements in technology offer powerful tools and platforms to streamline and optimize cost management processes. Leveraging technology-driven solutions can significantly improve efficiency and accuracy in cost management.
• Advanced Analytics and Reporting Tools: Utilizing data analytics and visualization tools to gain actionable insights into cost trends, performance metrics, and potential risks.
• Cloud-Based Solutions: Adopting cloud-based cost management solutions for enhanced accessibility, scalability, and collaboration across distributed project teams.

How Creately Helps in Estimating Project Costs:

Creately’s visual collaboration and diagramming software integrates seamlessly:

• Real-Time Cost Tracking : Ensuring that project managers have a clear and current picture of their project’s financial health.
• Infinite Canvas : Allows for an expansive view of project costs.
• Visual Kanbans : These project management system helps in prioritizing tasks that align with budget goals.
• Drag and drop tasks : The intuitive canvas further simplifies the process of managing project costs, making it accessible and actionable.

By leveraging these features, project managers can ensure that their projects not only meet their strategic objectives but also adhere to the financial constraints set forth at the outset. In essence, real-time cost tracking is not just about monitoring expenses; it’s about ensuring the financial integrity and success of the entire project.

Mastering project cost management requires three key elements: accurate estimation, effective control, and technology. By analyzing history, using expert judgment, and planning for surprises, estimations become more precise. Monitoring, value management, and change control help stick to budgets. Using project software, analytics, AI, and the cloud strengthens cost management. These strategies help teams overcome challenges and succeed.

Some helpful links for effective project Management

Guide to Work Breakdown Structure

Project Charter Template

RAID Log Guide

Stake Holder Mapping

Join over thousands of organizations that use Creately to brainstorm, plan, analyze, and execute their projects successfully.

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Chiraag George is a communication specialist here at Creately. He is a marketing junkie that is fascinated by how brands occupy consumer mind space. A lover of all things tech, he writes a lot about the intersection of technology, branding and culture at large.

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• Project cost management: Definition, st ...

Project cost management: Definition, steps, and benefits

Cost management is the process of planning, budgeting, and reporting project spend in order to keep teams on budget and overall costs reasonable. In this article, we'll go over the four functions of cost management and explain exactly how to use them to improve your project's bottom line.

What is cost management?

Cost management is the process of estimating, budgeting, and controlling project costs. The cost management process begins during the planning phase and continues throughout the duration of the project as managers continuously review, monitor, and adjust expenditures to ensure the project doesn't go over the approved budget.

Why is cost management important?

Have you ever wondered what happens when a project goes significantly over budget? The consequences can be severe—from strained relationships with clients to financial losses. Let's consider an example:

A small software development team was tasked with creating a custom application for a client. Midway through, they realized the project was quickly exceeding the initial budget. They faced a common dilemma: continue as planned and absorb the extra costs or re-evaluate their approach.

By implementing rigorous cost management strategies, the team was able to identify areas where expenses were ballooning. They streamlined their project management processes, prioritized essential features, and renegotiated terms with subcontractors. This approach not only brought the project back within budget but also improved their working relationship with the client, who appreciated their transparency and commitment to delivering value.

This scenario highlights how effective cost management can transform a potentially disastrous situation into a success story.

How to create a cost management plan

Cost management is a continuous, fluid process. However, there are four main elements or functions that can be found in any cost management plan:

Resource planning

Cost estimating, cost budgeting, cost control.

Because new expenses can appear and project scope can be adjusted, cost managers need to be prepared to perform all four functions at any time throughout the project life cycle. Your workflow will vary according to the project’s needs.

Here, we'll break down each of the four elements in greater detail and explain what is required from the cost manager at each stage.

The very first step in any cost management process is resource planning, which is when the cost manager reviews the project's scope and specs to figure out what resources the project will require.

A resource is anything that helps you complete a project—including tools, money, time, equipment, and even team members. To create the most accurate resource plan possible, consult directly with team leads and stakeholders about what resources they will need during the project. People with hands-on experience in each project department will have a better understanding of what resources will be required. 

For this step, you'll need:

Clearly defined project objectives

A high-level project roadmap or a work breakdown structure (WBS) , depending on the complexity of the project

A tentative resource management plan

A project scope statement

Once you have a list of necessary resources, the next step is to estimate what it will cost to procure them. The key to this step is to gather as much pricing information as possible so that you can make informed cost estimates.

For tangible resources like tools, supplies, and equipment, get real price quotes from sellers to inform your cost estimate. For labor costs, get multiple price quotes from potential contractors to help give you a realistic idea of what the work you require will actually cost. Keep in mind that some time may pass between when you make your estimate and when these items will be purchased, so you should build in some room in case prices rise. 

In addition to building in a cushion for each individual cost, you'll also need to add a buffer of 5–10% to your cost total to account for unexpected expenses. If this is your first time working with this project team, find out if the previous cost manager generated budget reports at the end of past projects. 

You can take a look at how much previous projects' final costs deviated from their initial estimates and use this cost data as a benchmark to estimate how much of a margin you need to build into your estimation report.

In the estimation stage , you'll need:

Project schedule or a PERT chart , depending on the complexity of the project

A list of your project deliverables

Clearly defined success metrics

Now that you have general estimates for your project needs and resource requirements, you can begin to work on your project budget . Your project budget is a detailed plan of how much you plan to spend during the project, for what, and by when. 

Depending on the complexity of your project, the “when” may significantly influence your cost management strategy. For multi-year projects, you may want to specify cost allocations so that no more than 30% of your budget should be spent in the first year, etc. This can prevent cost overruns later down the road.

In this stage, you'll need:

A project budget document 

A project stakeholder analysis

The bulk of the cost management process is made up of cost control . This is the process of recording and accounting costs as the project progresses, making adjustments, and alerting stakeholders to problems when they occur. The goal of the cost control step is to compare actual project costs with original budgets and estimates and take steps to make sure the project stays as close to plan as possible.

The frequency with which you review this will depend on your project. Sometimes you’ll want to review costs in real time. In other cases, you may check in monthly or even quarterly. Share cost updates as necessary through project status reports so the entire project team is on the same page.

Keep in mind that any changes to the project scope will impact the project budget and costs, so keep a close eye on scope creep. If the project cost deviates too much from what you budgeted, let your stakeholders know so you can proactively come up with an action plan.

Project management tool

Universal reporting tool

Post-project cost accounting

Once the project is over, it’s time to calculate cost variance and evaluate how far your project deviated from your original budget and estimates. What were the project’s total costs? How did your actual costs compare to your estimated costs? 

A successful project ends close to (but under) the forecasted project budget. If you spent too much money, you either underestimated your project budget or had too many unforeseen expenses. If this happens, hold a project post-mortem meeting to evaluate why that happened and prevent it from happening in the future.

On the flip side, spending too little of your budget is also not ideal. You estimated these costs for a reason, and if you came in significantly under budget, your cost-budgeting process was inaccurate. Log this information as historical data and keep it in mind for future projects, so you can increase your accuracy during the cost estimation phase.

How to calculate project costs

To ensure that your project stays profitable and within budget, it is essential to have a solid understanding of how to calculate project costs. 

Project managers have a variety of cost management methods to choose from, and picking the best one depends on the specific needs and scope of your project. Consider factors like project complexity, the predictability of tasks, client expectations, and the level of flexibility you'll need to achieve your cost-performance goals.

Calculating project costs on an hourly basis involves paying for the amount of work done, measured in hours. This method is particularly effective for projects where the scope is flexible or uncertain because it allows for adaptability as the project progresses. 

For example, consider a software development project. The development team's cost is calculated based on the number of hours they spend on the project. If the team works 100 hours a month at a rate of $100 per hour, the project costing for that month would be $10,000. This method provides flexibility and can accommodate changes in the project's scope effectively.

A flat rate, or fixed price, approach involves agreeing on a total project cost upfront. This method is ideal for projects with a well-defined scope and deliverables. This gives both parties a clear understanding of the total cost.

Imagine a marketing campaign. The agency and the client agree on a fixed price of $20,000 for the entire campaign. This price covers all aspects of the project, from planning to execution. The advantage here is predictability in budgeting, as the client knows exactly how much the project will cost, irrespective of the time and resources utilized.

The cost-plus method involves charging the actual costs of the project plus a markup or additional fee. This approach is often used in long-term projects where the costs cannot be accurately estimated at the start. It ensures that all project costs are covered and includes a profit margin.

For instance, in a construction project, the contractor charges for the actual costs incurred (like materials and labor) plus a fixed percentage as profit. If the material and labor costs amount to $50,000 and the agreed markup is 20%, the total charge to the client would be $60,000. This cost management method aligns the interests of the client and the contractor, as both parties aim for optimal cost performance.

Value-based pricing

Value-based pricing focuses on the value or benefit the client receives rather than the cost of the project itself. This estimation method is ideal for projects where the outcome has a high perceived value, regardless of the actual cost of delivery.

Consider a scenario where a consulting firm is helping a client increase their annual revenue. If the consultant's strategies result in a $1 million revenue increase, the consultant may charge a fee based on a percentage of the revenue increase, say 10%, which would be $100,000. Value-based pricing ensures that the pricing reflects the value delivered.

Effective project cost management methods

One of the most persistent challenges faced by teams across various industries is controlling and preventing budget overruns. These overruns not only strain financial resources but can also lead to compromised project quality, delayed timelines, and even project failure. 

Effective cost management is the key to tackling this challenge because it makes certain that projects are delivered within their allocated budgets while maintaining high standards of quality and efficiency.

Choosing the best cost-management method is key to addressing these financial challenges head-on. For further cost optimization, teams can leverage automation, management software, and dashboards that offer real-time cost analysis, cash flow, and future cost visualization. This will ultimately contribute to the success of your project.

Top-down estimating

Top-down estimating is a method where the overall project cost is estimated first, and then individual costs are deduced from this total. This approach is beneficial in the early stages of project planning, when detailed information is not yet available. It gives a quick and rough idea of how much the project will cost.

For example, in a new software development project, the project manager might estimate the total project cost at $200,000 based on previous similar projects. This total cost is then broken down into smaller segments like design, coding, testing, and deployment, each allocated a portion of the total budget. This method is effective for providing a preliminary cost framework and guiding early project decision-making.

Bottom-up estimating

Bottom-up estimating is the reverse of the top-down approach. It involves estimating individual tasks or components of the project first and then adding them up to get the total project cost. This estimation method is more accurate and reliable, especially for projects with a well-defined scope, as it considers detailed cost information.

Consider a construction project where each part of the project, such as foundation laying, framing, plumbing, and electrical work, is estimated individually based on detailed analysis. After estimating all these components, the costs are summed up to determine the overall project budget. Bottom-up estimating is ideal for teams that need precise control over each aspect of the project's costs.

Earned value management

Earned value management (EVM) is a sophisticated approach to cost management that combines measurements of project performance in terms of scope, schedule, and cost. EVM provides a comprehensive view of the project's progress and its alignment with the original project planning.

For instance, in a large infrastructure project, EVM would be used to track the following: 

Budgeted cost of work scheduled (BCWS)

Actual cost of work performed (ACWP)

Budgeted cost of work performed (BCWP) 

By comparing these figures, project managers can gauge the project's cost performance and take corrective action if necessary.

Three-point estimating

Three-point estimating is used to determine a more realistic estimate by considering three scenarios: 

Most optimistic (best-case) 

Most pessimistic (worst-case) 

Most likely 

This cost management method provides a range of possible outcomes, which can increase the predictability and cost performance of a project.

Take, for example, a new product development project. The project manager might estimate that the design phase could take 30 days (optimistic), 45 days (most likely), or 60 days (pessimistic). Using these three points, they calculate an average or weighted average duration, which helps in setting realistic timelines and budgets.

FAQ about cost management

What is the first step in project cost management.

The first step in project cost management is to define the baseline for your project's budget. This involves identifying all potential costs and inputs related to the project, including labor, materials, equipment, and any other expenses. Creating a baseline is essential because it provides the framework for monitoring and controlling expenses during the lifecycle of a project.

What are the 5 functions of cost management?

The five key functions of cost management are:

Cost estimation: Determining the total cost required for completing the project.

Cost budgeting: Allocating the overall cost estimate to individual work items to establish a baseline for measuring performance.

Cost control: Monitoring project expenses and implementing measures to keep costs within the approved budget.

Cash flow management : Ensuring there is adequate cash flow to meet project needs, which is critical for maintaining project momentum.

Procurement management: Managing the procurement of goods and services, ensuring that everything is obtained at the best possible cost and meets project needs.

What is cost management in project management?

Cost management in project management is the process of planning, estimating, budgeting, and controlling costs with the aim of completing the project within the approved budget. It involves a continuous process of measuring and monitoring project activities and expenses and implementing necessary adjustments to ensure that the project's financial resources are used effectively. 

Improve your project performance with cost management

Cost management has a lot of moving parts. But as long as your team has visibility into project costs, you can prevent cost overruns and ensure you’re finishing your project under budget every time.

To keep track of all of your project’s information, use a work management platform like Asana. From project costing and kickoff to post-mortem, Asana helps you stay in sync with your project team members and stakeholders during the entire project process.

Related resources

How to accomplish big things with long-term goals

Smooth product launches are simpler than you think

What is stakeholder analysis and why is it important?

How Asana uses work management to optimize resource planning

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Project cost estimation: types and techniques for project success in 2024

Plus a 4-step process to calculate project costs as accurately as possible.

Stella Inabo,   Content Marketer

• project planning

Project cost estimating is the process of predicting the total cost of the tasks, time, and resources required to deliver a project’s scope of work.

Unfortunately for project and resource managers, humans can’t see into the future 🔮 and that’s what makes cost estimation for projects a daunting task.

But even if you’re not a clairvoyant, there are several methods and tools to help you create cost estimates that will be close to the project’s actual cost. We’ll cover them below, including:

• What a project cost estimate is
• How to create one
• Methods and tools for cost estimation

Plus, we’ll also give you an example of how one of our customers figured out how to estimate costs for a new project.

What is cost estimation in project management?

Project cost estimation is the process of forecasting the financial resources required to complete a project successfully. It involves analyzing various factors such as labor, materials, equipment, overhead, and other expenses associated with the project to come up with an estimate of the total cost.

Cost estimation is a critical aspect of strategic project management as it provides stakeholders with valuable information for decision-making, budgeting, and resource allocation .

It helps ensure that projects are completed within budget constraints and enables project managers to identify potential cost overruns or risks early in the project lifecycle.

Imagine you’re a digital agency owner about to send a proposal to a client to revamp their website. Your main question is probably: How much is this going to cost us? Well, one way to figure that out is by looking back at a similar project you’ve tackled before: how long it took, who was involved, and what they charged per hour.

If you’ve been storing all this project info in a dedicated resource management tool , accessing these details should be a breeze.

You can easily store and track all your projects in Float

Get your project cost estimates right with resource management software

Rated #1 on G2 for resource management , Float helps your team accurately forecast project costs with a detailed view of your capacity, availability, and budget spend.

5 project cost estimation methods & techniques

You can estimate how much a given project might cost in different ways. Here are five cost estimation techniques and who they might work best for—but remember, this list is not exhaustive. 

1. Analogous estimate

Analogous estimation is a top-down approach that uses historical data from similar past projects to estimate the cost of a new one.

Let’s say you want to estimate the cost of an advertising campaign for a new Netflix film: you’d look at the cost analysis of a past project that is similar in size and scope and make some adjustments based on changes in equipment, inflation rates, and resource costs.

This cost estimation technique is best for you if you have a reliable record of the cost and duration of past projects.  

2. Bottom-up estimate 

Bottom-up estimating is where you estimate the cost for individual tasks or components of a project and then sum them up to get to the total project cost. 

It involves creating a work breakdown structure and including overheads for contingencies . 

This cost estimation technique is best for projects with a well-defined scope and list of tasks. 

3. Parameter estimate 

Parameter estimation is a method that makes predictions or estimates based on specific characteristics or data points. It’s like making an educated guess using known factors or measurements.

For instance, a paid ad agency estimates that reaching the target audience on a specific platform might cost $4,000 based on past campaigns and the client’s objectives. So they project that creating multiple ad variations could cost $10,000, and they sum up these estimated costs to provide the client with an overall estimate for the advertising campaign. 

Parametric estimation works best when you have a lot of information from similar projects in the past. 

4. Three-point estimate

A three-point estimation is a way to calculate a project’s cost based on likely, optimistic, and pessimistic cost projections.

The benefit of a three-point estimation is that it ties a project’s costs to uncertainties and risks, which allows you to plan for "worst-case" scenarios.

Let’s say you’re to find the cost of building a new website. Your estimate could look like this:

💰 Likely cost: $10k 😃 Optimistic costs: $7.5k 😟 Pessimistic costs: $15k

These three figures become a basis for building an average estimate. Simply add them together and divide by three:

10,000 + 7,500 + 15,000 = 32,500

32,500 ÷ 3 = 10,833

As a result, the average project estimate is $10,833.

Three-point estimates are best for where there’s a lot of uncertainty or variability in the tasks or projects.

5. Ballpark estimate

A ballpark estimate will give you the approximate value of a project based on the combination of similar projects you’ve done in the past and expenses unique to the particular project.

Let’s say your client needs a website built and your team has done similar projects in the past for $10k. Using the ballpark estimate, the cost might range from -25% to +50% ($7.5k - $15k).

Ballpark estimates are best used when there’s limited information available like at the start of a project. 

How to create accurate cost estimates using a dedicated tool 

The cost estimation process we will outline below is best suited for you if 

1. You are running a professional service business, not an internal project 

2. You have some idea of how much things cost based on historical data

If you don’t have any historical cost data, you can skip to the section below this one to see how to estimate costs for new projects. Note that we will be using our tool, Float, throughout this example; if you are using a different tool (or none at all) some parts of this may not be applicable, but the overall approach remains the same. Here is how you can create accurate estimates:

1. Gather data from past projects

Start by collecting data from past projects that are similar in scope, size, and complexity to your current project. This data should include total costs, duration, resources used, and any other relevant information.

To find similar projects in Float, here’s what you would do:

• Head over to the Project tab in Float 
• Toggle the project view options to “Archive” and voila, all your old projects will apply

You can access records of past projects in Float

If you don’t have any projects in Float, you can sign up for a free 14 day trial , import your project details in, and get started. You can learn how to get set up with this guide .

2. Identify variables and adjust costs

A few things (or a lot) might have changed since you worked on other similar projects. Before estimating costs for new projects, look for any changes from previous work like higher billing rates or pricier software like VFX instead of CGI. 

Aside from cost, consider how durations might have to change. Check if certain phases in past projects took longer than expected and adjust for new projects accordingly.

You can easily check for variations in duration by heading to the Report page in Float and comparing the actual and scheduled time spent on tasks.

You can see your team’s scheduled vs logged time in Float

3.  Create a tentative project to calculate the estimated costs

By now, you should have a good idea of the people, duration, and billing rates you need for the new project. 

To get a good idea of how much will cost, create a tentative project in Float. You can do this by simply selecting Tentative on the project menu.

You can plan unconfirmed projects in Float by creating tentative projects

Then, allocate your team’s time to the project and set your budget type and billing rates. You can use placeholders if you plan to hire freelancers.

Because the project has been marked tentative, the new allocations will not affect your team’s time schedule . 

Once you are done setting up the project, head over to the project report to check for the total estimated cost.

4. Review the estimate with your team

Verify the estimate with stakeholders, experts, or team members to ensure its accuracy. Different team members might notice things that were initially overlooked. This process helps uncover any missed details or factors in the initial estimate.

A real-life cost estimate example for new projects (without past data)

One of our customers , a marketing and communications company, took on a project they had never worked on before (we’re not going to share their name to protect their privacy 😉)

Since they had not done similar projects in the past, they anticipated a learning curve and expected to spend more time than initially scoped due to several potential client revisions. 

To accommodate this uncertainty, they added buffers—increasing the estimated cost by 50% and extending the project duration from 30 to 45 or 50 working days.

You can set your project budget based on estimates in Float

These measures allowed them to manage additional costs caused by a slower pace and multiple rounds of client feedback.

Use resource management software to track and control costs in real-time

When your project budget gets a thumbs up, there lies a new challenge of cost management and control. The things to pay attention to never end!

This is where a dedicated resource management tool can help you not just make estimates, but also track spending as it happens, ensuring that you always know how much money is available and when you’re running out of funds. 

And, yes: you can also do this in a spreadsheet. But if you track your projects in Float, you can just click on a project and see the entire budget. Ta-da!

Project budget report in Float

Depending on the budget type you choose, you can either see the budget displayed in hours or currency.

You can choose between 5 budget types in Float

You can see how much was spent per project phase and the remaining budget. 

You can also keep tabs on your team’s hours and individual rates. And if there are cost overruns , Float alerts you by showing how much over budget your project is. 

If you’re ready to take control of your project costs, sign up for a free trial today .

Forecast project costs with the #1 rated resource management software

More than 4,500 of the world’s top teams rely on Float to plan their projects, track budgets, and keep work on track.

Some FAQs about project cost estimation

What factors influence cost estimates.

Several elements can influence cost estimates. These cost elements include:

• Scope of work
• Material costs
• Equipment costs
• Project duration
• Market conditions
• Location factors
• Inflation rates
• Contingency allowances

Who performs project cost estimation?

Cost estimating can be performed by various individuals or teams depending on the nature and size of the project. This may include project managers, cost estimators, engineers, financial analysts, and other relevant stakeholders.

How can businesses choose tools and software for estimating costs?

Choosing the right estimating software depends on several factors, including the specific needs of your organization, the complexity of your projects, your budget, and the features you require.

Related reads

How to calculate fte for better resource (and budget) management, what is resource utilization formula + examples, how to create & manage timesheets effectively.

Project Management Templates | FREE Downloads Word, Excel, PDF, Visio

• 100s of tasks covering the whole project life cycle
• Compatible with other Microsoft Project versions
• Proven to save you time and deliver results
• Software Development and Rollout
• Business Events and Conference
• Warehouse Construction
• Website Design and Build
• LEARN MORE!

Cost Management Plan Template | FREE Download

The Cost Management Plan is a PMBOK document which sets out how the project costs will be estimated, tracked, monitored, reported and controlled. It forms part of the Project Management Plan and supplies information to the Activity Cost Estimates, Cost Baseline and risk register . stakeholdermap.com

• Contents of the Cost Management Plan Template
• DOWNLOAD Cost Management Plan Template
• Other Project templates to download

The contents of the Cost Management Plan Template

Field description and tips to complete, project details and document control.

• Project Name and Reference
• Document information: ID, owner, issue date, last saved date, file name or path
• Document history: version, issue date, changes.
• Document approvals: role, name, signature, date

Cost Units of Measure

Organizational procedure links, project cost tolerances.

Rules of Performance Management

Cost reporting and format.

Additional Details

• The funding choices made and why.
• Management of currency exchange rate fluctuations.
• The currency used to manage the project.
• Currency used for the organization’s financial books. For example, the project costs might be invoiced in GBP, but globally reported in USD using a fixed exchange rate.

Cost Management Plan Template

Word download - cost management plan template (.doc), word download - cost management plan template (.docx), pdf download - cost management plan template (pdf), odt download - cost management plan template (.odt), more project templates to download.

• Microsoft Project Plans – real world project plans in Microsoft Project.

PMBOK Management Plans

• Change Management Plan
• Communications Management Plan
• Cost Management Plan
• Project Management Plan
• Schedule Management Plan
• Scope Management Plan
• Risk Management Plan
• 20 Common Project Risks

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Free Project Costing Templates

By Kate Eby | April 5, 2022

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We’ve compiled the most effective project costing templates for project managers (PMs), project cost controllers (PCCs), and cost analysts, as well as helpful tips on using project costing templates. 

Included on this page, you’ll find a simple project costing template , a construction project costing tracking spreadsheet , a software project costing template , an IT project costing template , and a sample project costing sheet template .

Simple Project Costing Template

Download Simple Project Costing Template Microsoft Excel | Google Sheets  

Use this simple project costing template to determine the total funds, including direct and indirect costs, required to complete your project. The template allows you to compare best case, most likely, and worst case scenarios, so you can refine your cost estimates for each task. The Weighted Average column averages the item costs of all three scenarios to give you the most accurate total cost estimates, and the Running Weighted Average field tallies your total weighted averages to give you a more accurate financial picture of your project’s true cost. 

To get the most out of your project cost estimations, see our comprehensive guide to project cost estimating .

Construction Project Cost Tracking Spreadsheet Template

Download Construction Project Cost Tracking Spreadsheet Template Microsoft Excel | Google Sheets  

Use this simple construction project cost tracking spreadsheet to accurately estimate line-by-line and total construction project costs. Enter category and items, projected and actual costs, responsible parties, status, and percentage of each task complete. The template also doubles as a budgeting template by keeping tabs on amounts currently paid and due, so you can see your projected and actual project total and track outstanding payments.

Software Project Costing Template

Download Software Project Costing Template  Microsoft Excel | Google Sheets  

Use this comprehensive software project costing template to calculate costs for your software projects. Use the Estimation Variables section to factor in all project management and project control efforts, and compare estimated and actual hours for each phase of your software project. For each software development phase or activity, enter the computed work hours, task duration in weeks, and average hourly resource cost, to arrive at a precise estimation of your project’s total costs.

IT Project Costing Template

Download IT Project Costing Template Microsoft Excel | Microsoft Word | Adobe PDF

Designed for IT departments, this project costing template helps IT project managers accurately estimate project costs. The template also helps you keep IT project costing within the authorized spending limit, define an action plan for cost variance, and establish the project’s cost baseline, including a work breakdown structure (WBS) for each project task or group of tasks. The Project Budget section allows you to list the final figures for contingency, as well as the fixed, material, contractor, and total project costs.

Sample Project Costing Sheet Template

Download Sample Project Costing Sheet Template Microsoft Excel | Google Sheets  

This sample project costing sheet template includes sample text to guide you through the  project cost estimation process. Enter details for each task, such as date entered, task description, and different cost estimate scenarios. Find the weighted project cost in the Running Weighted Average Total field, which calculates projected costs based on the three-point cost estimation technique (best case, most likely, and worst case scenarios). 

For solutions and resources to ensure that you optimize your project costing, read our guide to project cost management .

Parametric Project Cost Estimating Template

Download Parametric Project Cost Estimating Template — Microsoft Excel  

Track item-by-item and overall product and labor expenses with this parametric project cost estimating template. Use the template to anticipate all of your project’s expenditures, so you can calculate a comprehensive and accurate estimate of total project costs while staying within the parameters of your proposed or existing project. 

For more resources, check out our comprehensive collection of free estimate templates .

Project Costing Control Template

Download Project Costing Control Template  Microsoft Excel | Google Sheets

The most successful projects meet stakeholder expectations and stay within their defined budgets. PMs or PCCs can use this project costing control template to ensure that their plans account for all project costs and that projects stay within budget. Enter each project task and its budgeted and actual amounts, and then tally your project’s actual costs and compare them to your total project budget.

Project Cost Tracking Template

Download Project Cost Tracking Template  Microsoft Excel | Microsoft Word | Adobe PDF

Use this project cost tracking template to ensure that you accurately estimate the cost of your project, and that you capture all potential and actual costs. This customizable, print-friendly template helps you define your project’s purpose, reporting requirements, spending limit authorization levels, cost estimation processes, cost controls and metrics, and your total project budget.

Project Estimate Template

Download Project Estimate Template – Microsoft Excel

Gain a high-level perspective on the statuses, estimated hours, project phases, and task-by-task project costs for various project components with this project estimate template. The template tallies the estimated total cost, number of estimated associates, and number of estimated hours, so that you can identify whether you are over or under budget and therefore, might need to adjust project expenses.

What Is a Project Costing Template?

A project costing template is a structured form that project managers use to calculate the total funds required for a project. Use the template to estimate your project’s total projected expenditures and to ensure that you account for all direct and indirect costs.  

By using effective project cost management (PCM) to estimate your project costs, you ensure that PMs, PCCs, project sponsors, and clients all agree upon a project budget and foresee all potential project costs. 

A project costing template also assists with tracking projected versus actual project costs. Additionally, templates help with calculating the individual cost of tasks, labor, units, and work hours, checking your budget status, and anticipating risks before they become a budgeting liability. 

While project costing templates may vary, they usually include the following core components: 

• Project Name: Enter a unique name for the project. 
• Project Manager: List the name of the project manager responsible for PCM. 
• Category: Specify a category name for each project cost task or item.  
• Task or Item: List the name of each project task or item under its respective category.  
• Description: Provide a description for each project task. 
• Projected Subtotal: Enter the projected subtotal for each project task or item. 
• Actual Subtotal: Provide the actual subtotal cost for each project task or item. 
• Project Budget: Enter the total budget amount. 
• Projected Total: Review the projected total cost for all project cost items and tasks. 
• Actual Total: Review the actual total costs for all project cost items and tasks. 
• Variance: Review the variance between the projected and actual total costs to determine whether you are over or under budget.

Additionally, a more detailed project costing template might include the following sections to further define a project’s costing figures: 

• Spending Limit Authorization Levels: Enter the spending limit that has been authorized for each project item. 
• Cost Variance Action Plan: Detail the plan of action that should be taken if the project’s cost variance is unfavorable.
• Cost Estimate Process: Describe how you calculated your initial budget to meet the project’s requirements, including direct and indirect costs. 
• Cost Baseline: Provide the WBS for each project task or category of tasks, cost estimation method, and method of funding for the project. 
• Cost Control: Detail the metrics used to keep the project under its set cost thresholds.

Streamline Project Costing with Smartsheet for Project Management

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The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.

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Project Cost Management: Process, Importance, Examples, And Plan, And Tools

Written By : Bakkah

27 Feb 2024

Table of Content

What is Cost management definition?

Importance and benefits of project cost management, project cost management best practices, project cost management process, project cost management template, what are cost management tools, how to create a cost management plan, effective project cost management methods, how to calculate project costs, who is responsible for project cost management, project cost management examples, challenges of cost management , project management cost with bakkah learning:, popular articles.

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Project Cost Management is the process of planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget. Project Cost Management includes activities such as cost estimation, budget development, cost control, and monitoring expenditures throughout the project lifecycle. Effective cost management is crucial for budget control, resource optimization, risk mitigation, stakeholder confidence, competitive advantage, and project success. 

Best practices of Project Cost Management include comprehensive planning, regular monitoring and reporting, risk management, clear communication, cost control measures, change management, continuous improvement, and the utilization of technology.

Successful project cost management involves the collaboration of project managers, finance teams, and other relevant stakeholders to develop realistic budgets, identify cost-saving opportunities, and mitigate financial risks . By implementing robust cost management practices, organizations can optimize resource allocation, enhance project performance, and maximize return on investment. 

Additionally, continuous evaluation and adjustment of cost management strategies based on project progress and changing circumstances are essential to adapt to unforeseen challenges and ensure the project's financial viability.

 Cost management involves a series of activities aimed at ensuring that the project is completed within the allocated financial resources while delivering the intended value and meeting stakeholders' expectations. 

This process encompasses various stages, including cost estimation, budget development, cost control, and monitoring of expenditures throughout the project lifecycle. Effective cost management requires accurate forecasting, diligent tracking of expenses, proactive risk management and regular reporting to stakeholders to ensure transparency and accountability.

Project cost management is crucial for several reasons:

1. Budget Control: 

Effective cost management ensures that a project stays within its allocated budget. By accurately estimating costs, tracking expenses, and implementing cost-saving measures, organizations can prevent overspending and avoid financial risks, ensuring the project's financial health and viability.

2. Resource Optimization: 

Proper cost management enables organizations to optimize resource allocation, including finances, manpower, materials, and equipment. By identifying and eliminating inefficiencies, reallocating resources as needed, and prioritizing spending, projects can operate more efficiently, enhancing productivity and reducing waste.

3. Risk Mitigation: 

Cost management helps identify and mitigate financial risks that may impact project outcomes. By proactively identifying potential cost overruns, fluctuations in resource prices, or unexpected expenses, organizations can develop contingency plans and strategies to mitigate these risks, minimizing the impact on the project's timeline and budget.

4. Stakeholder Confidence: 

Transparent and effective cost management builds trust and confidence among project stakeholders, including clients, investors, and sponsors. Providing regular updates on budget status, demonstrating prudent financial management practices, and delivering projects within budget constraints enhance stakeholder satisfaction and credibility, fostering positive relationships and future opportunities.

5. Competitive Advantage: 

Efficient cost management can give organizations a competitive edge by allowing them to deliver projects more cost-effectively than their competitors.

6. Project Success: 

Ultimately, successful project cost management contributes to the overall success of the project. By ensuring that the project is completed within budget, on time, and according to quality standards, organizations can achieve their objectives, deliver value to stakeholders, and sustain competitiveness in the marketplace. Effective cost management is therefore essential for achieving project goals, maximizing return on investment, and driving organizational success.

Some best practices for project cost management include:

1. Planning : 

Begin with comprehensive planning that includes detailed cost estimation and budgeting. Break down the project into manageable tasks, identify all potential costs, and develop a realistic budget based on accurate estimates.

2. Regular Monitoring and Reporting: 

Implement a robust system for monitoring project costs regularly. Track expenses against the budget, identify variances, and analyze the reasons behind them. Provide timely and accurate reports to stakeholders to keep them informed about the project's financial status.

3. Risk Management: 

Anticipate potential cost risks and develop strategies to mitigate them. Identify common cost drivers, such as resource shortages, scope changes, or market fluctuations, and develop contingency plans to address them effectively.

4. Clear Communication: 

Foster open and transparent communication among project team members, stakeholders, and relevant departments. Ensure that everyone understands the budget constraints, cost objectives, and their roles in managing project costs effectively Cost Control 

5. Measures : 

Implement cost control measures to optimize spending and prevent cost overruns. This may include negotiating better prices with suppliers, implementing cost-saving initiatives, or reevaluating the scope to align with the budget.

6. Change Management: 

Establish a formal change management process to handle scope changes or variations that may impact project costs. Assess the financial implications of proposed changes, obtain approval from relevant stakeholders, and update the budget and plans accordingly.

7. Continuous Improvement: 

Regularly review project cost management processes and performance to identify areas for improvement. Collect feedback from team members, conduct post-project reviews, and incorporate lessons learned into future projects to enhance cost management practices.

8. Utilization of Technology: 

Leverage project management software and cost tracking tools to streamline cost management processes, automate reporting, and improve accuracy. Utilizing technology can also facilitate real-time collaboration and decision-making among project stakeholders.

By following these best practices, organizations can effectively manage project costs, minimize financial risks, and increase the likelihood of project success.

Project cost management is the process of planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget. It involves several key processes:

1. Cost Estimation:  

This involves estimating the costs of the resources (such as labor, materials, equipment) needed to complete the project activities.

2. Cost Budgeting: 

Once the costs are estimated, a budget is developed, which outlines how much will be spent on each activity or work package

3. Cost Control:  

During the execution phase, cost control involves monitoring project costs to ensure they stay within the approved budget. This includes tracking expenses, identifying variances, and taking corrective actions if necessary to keep costs in line.

4. Resource Planning: 

Efficiently planning and allocating resources to minimize costs while meeting project objectives.

5. Risk Management: 

Identifying and assessing potential risks that could impact project costs, and developing strategies to mitigate these risks.

6. Procurement Management:  

Managing the procurement process to obtain goods and services needed for the project at the best possible price.

Overall, effective cost management helps ensure that the project is completed within budget constraints while delivering the expected results.

A project cost management template typically includes sections for various aspects of cost management throughout the project lifecycle. Here's a basic template outline:

Project Cost Estimation:

• Identify all resources needed for the project (labor, materials, equipment, etc.).
• Estimate the cost of each resource.
• Use historical data, expert judgment, and other estimation judgment, and other estimation techniques

Cost Baseline Development:

• Develop a baseline budget that outlines the total cost of the project.
• Break down the budget by phase, deliverable, or work package.

Cost Tracking and Monitoring:

• Establish a system for tracking actual costs incurred during project execution.
• Compare actual costs to the baseline budget regularly.
• Identify and address any cost variances promptly.

Cost Control Measures:

• Implement measures to control costs and prevent budget overruns.
• Define thresholds for acceptable cost variances.
• Develop a process for approving and managing changes to the budget.

Resource Allocation:

• Allocate resources based on project needs and budget constraints.
• Ensure resources are utilized efficiently to minimize costs.

Risk Management:

• Identify potential cost risks and their impact on the project.
• Develop strategies to mitigate cost risks and minimize their likelihood of occurrence.

Procurement Management :

• Identify procurement needs for goods and services required for the project.
• Develop procurement plans and strategies to obtain goods and services at the best possible cost

Financial Reporting:

• Generate regular reports on project financials, including budget status, actual costs, and cost variances.
• Communicate financial status to stakeholders and project team members.

Documentation and Lessons Learned:

• Maintain documentation related to project costs, including estimates, budgets, and cost reports.
• Document lessons learned regarding cost management for future projects.

Continuous Improvement:

• Review cost management processes regularly and identify areas for improvement.
• Implement changes to enhance cost management effectiveness for future projects.

Cost management tools are software applications or platforms designed to assist project managers and teams in planning, tracking, analyzing, and controlling project costs effectively. These tools typically offer a range of features to streamline various aspects of cost management. Some common cost management tools include:

1. Project Management Software: 

Comprehensive project management platforms often include built-in features for cost management, such as budget tracking, expense management, and reporting. Examples include: 

• Microsoft Project

2. Spreadsheet Software : 

Spreadsheet programs are commonly used for cost management due to their flexibility and familiarity. They can be customized to create budget templates, track expenses, and perform cost calculations. Examples include:

• Microsoft Excel
• Google Sheets
• Apple Numbers

3. Cost Estimation Software : 

These tools specialize in helping project managers estimate project costs accurately. They may use historical data, industry benchmarks, and mathematical models to generate cost estimates. Examples include:

4. Expense Management Tools: 

These tools streamline the process of tracking and managing project expenses, including reimbursable costs, invoices, and receipts. Examples include:

• Zoho Expense

5. Financial Management Software: 

Dedicated financial management platforms offer features for budgeting, forecasting, and financial reporting, which can be useful for project cost management. Examples include:

6. Time Tracking Software : 

While primarily used for tracking time spent on tasks, time tracking tools can also help indirectly in cost management by providing insights into resource utilization and labor costs. Examples include:

7. Procurement Management Software: 

For projects involving procurement of goods and services, procurement management tools can help streamline the procurement process, track vendor contracts, and manage supplier relationships. Examples include:

8. Business Intelligence Tools:

Advanced analytics and reporting tools can be used to analyze project costs, identify trends, and generate insights for better decision-making. Examples include

These tools can vary in complexity and functionality, so it's important to choose the ones that best fit the specific needs and requirements of your project and organization. Additionally, integrating multiple tools may be necessary to cover all aspects of cost management effectively.

Creating a cost management plan involves several key steps to ensure that project costs are effectively planned, monitored, and controlled. Here's a step-by-step guide to creating a cost management plan:

1. Define Objectives and Scope:

Clearly define the objectives of the cost management plan.

Identify the scope of the plan, including which projects or phases it applies to and the key stakeholders involved.

2. Identify Cost Categories:

Break down the project costs into categories such as labor, materials, equipment, overhead, contingency, etc.

Determine which costs are direct (specifically attributed to the project) and which are indirect (shared across multiple projects or overhead).

3. Estimation Techniques:

Choose appropriate cost estimation techniques based on the nature of the project and available information.

Common techniques include analogous estimation, parametric estimation, and bottom-up estimation.

4. Cost Baseline Development:

Develop a baseline budget that represents the total estimated cost of the project.

Break down the budget by phase, deliverable, or work package to track costs at a granular level.

5. Cost Control Measures:

Define measures to control costs and prevent budget overruns.

Establish thresholds for acceptable cost variances and develop a process for managing changes to the budget.

6. Resource Allocation:

Allocate resources based on project needs, budget constraints, and resource availability.

Ensure resources are utilized efficiently to minimize costs and maximize productivity.

7. Risk Management:

Identify potential cost risks that could impact the project budget.

Develop strategies to mitigate these risks and minimize their likelihood of occurrence.

8. Procurement Strategy:

Determine the procurement needs for goods and services required for the project.

Develop a procurement strategy to obtain these items at the best possible cost, considering factors such as quality, schedule, and budget.

9. Roles and Responsibilities:

Clearly define the roles and responsibilities of team members involved in cost management.

Assign specific individuals or teams to oversee cost estimation, budgeting, tracking, and control.

10. Communication Plan:

Establish a communication plan to keep stakeholders informed about project costs.

Define reporting mechanisms, frequency of updates, and the format of cost-related communications.

11. Documentation and Reporting:

Document all cost-related information, including estimates, budgets, actual costs, and cost variances.

Develop a system for generating regular cost reports and distributing them to stakeholders

12. Review and Update:

Regularly review the cost management plan throughout the project lifecycle.

Update the plan as needed to reflect changes in project scope, budget, or other factors.

By following these steps, you can create a comprehensive cost management plan that helps ensure your project stays on budget and delivers value to stakeholders.

Effective project cost management involves various methods and strategies to ensure projects stay within budget. Here are some key methods:

1. Cost Estimation : 

Accurately estimating project costs at the outset is crucial. Techniques like analogous estimation, parametric estimation, and bottom-up estimation can be used.

2. Budget Allocation: 

Once costs are estimated, allocate budgets to different project phases and activities. This helps in tracking and controlling expenses.

3. Cost Tracking: 

Regularly track expenses against the budget using tools like cost tracking software or spreadsheets. This helps in identifying cost overruns early.

4. Change Management: 

Implement a robust change management process to evaluate and approve changes to the project scope, timeline, or budget. This prevents unauthorized scope creep and cost increases.

5. Resource Management: 

Efficiently manage resources to avoid wastage and optimize costs. This includes human resources, materials, equipment, and subcontractors.

6. Risk Management: 

Identify potential risks that could impact project costs and develop mitigation strategies. Contingency reserves can be allocated to handle unforeseen events.

7. Vendor Management: 

Negotiate contracts with vendors and suppliers to get competitive prices and favorable terms. Regularly review vendor performance to ensure value for money.

8. Earned Value Management (EVM):  

EVM integrates cost, schedule, and scope to assess project performance. It helps in forecasting future costs and identifying variances from the baseline plan.

Calculating project costs involves several steps:

1. Identify Resources:  

List all resources required for the project, including personnel, equipment, materials, and any external services.

2. Estimate Costs: 

Estimate the cost of each resource item. For personnel, this involves calculating labor costs based on salaries, wages, benefits, and overhead. For materials and equipment, research current market prices or obtain quotes from suppliers. For external services, solicit bids or estimate based on past experiences.

3. Allocate Costs: 

Allocate costs to specific project tasks or activities. Break down costs by phase, milestone, or deliverable to create a detailed cost breakdown structure (CBS).

4. Account for Contingencies: 

Include contingency reserves to account for unforeseen events or changes in scope. Typically, this is a percentage of the total project cost, based on risk assessment and historical data.

5. Calculate Total Project Cost: 

Sum up all estimated costs, including direct costs (e.g., labor, materials) and indirect costs (e.g., overhead, administrative expenses) to determine the total project budget.

6. Monitor and Update: 

Continuously monitor project expenses against the budget throughout the project lifecycle. Update cost estimates as needed to reflect changes in scope, schedule, or resource availability.

7. Analyze Variances: 

Analyze variances between actual costs and budgeted costs to identify areas of overruns or savings. Adjust future cost estimates and project plans accordingly to keep the project on track financially.

By following these steps, project managers can effectively calculate project costs and ensure financial transparency and accountability throughout the project.

Project cost management is a collaborative effort involving multiple stakeholders within an organization. The primary roles responsible for project cost management include:

1. Project Manager: 

The project manager oversees all aspects of project cost management. They are responsible for developing the project budget, monitoring expenses, managing cost estimates, and ensuring that the project stays within budgetary constraints.

2. Finance Department : 

The finance department provides expertise in financial planning and analysis. They may assist in creating cost estimates, tracking expenses, managing financial resources, and ensuring compliance with financial regulations.

3. Procurement Team: 

The procurement team is responsible for sourcing and acquiring resources needed for the project. They play a crucial role in negotiating contracts, obtaining quotes, managing vendor relationships, and controlling procurement costs.

4. Project Team Members:

Team members contribute to cost management by accurately tracking their time and expenses, adhering to budget guidelines, and efficiently utilizing resources allocated to them.

5. Stakeholders : 

Stakeholders, including clients, sponsors, and senior management, are involved in project cost management by providing input on budget priorities, approving budget allocations, and monitoring financial performance against project objectives.

By engaging these key stakeholders and fostering effective communication and collaboration among them, organizations can ensure successful project cost management throughout the project lifecycle.

Here are some examples of project cost management in various industries:

1. Construction Project: 

In a construction project, cost management involves estimating costs for materials, labor, equipment, and subcontractors. Examples of cost management activities include preparing a cost baseline, tracking actual costs against the baseline, identifying cost variances, and implementing cost control measures to ensure the project stays within budget. 

For instance, a project manager might negotiate with suppliers to obtain discounts on materials, optimize resource allocation to minimize labor costs, or identify opportunities to reduce waste and improve efficiency on the construction site.

2. Information Technology Project: 

In an IT project, cost management encompasses estimating expenses for hardware, software licenses, development resources, and ongoing maintenance. Examples of cost management activities include creating a budget for the project, monitoring spending against the budget, identifying cost-saving opportunities, and adjusting the budget as needed to align with project priorities. 

For instance, a project manager might explore options for using open-source software to reduce licensing fees, negotiate with vendors to obtain favorable pricing on hardware purchases, or prioritize project features based on their cost-benefit ratio.

3. Marketing Campaign: 

In a marketing campaign project, cost management involves budgeting for advertising, creative services, promotional materials, and campaign execution. Examples of cost management activities include allocating funds to different marketing channels, tracking expenses for each campaign component, analyzing return on investment (ROI) for marketing initiatives, and optimizing spending to maximize the campaign's effectiveness.

For instance, a marketing manager might use cost-per-acquisition metrics to evaluate the efficiency of various advertising channels, adjust the allocation of funds based on campaign performance, or negotiate pricing with vendors to lower production costs for promotional materials.

4. Manufacturing Project: 

In a manufacturing project, cost management includes estimating expenses for raw materials, production equipment, labor, and overhead costs. Examples of cost management activities include developing a manufacturing budget, monitoring production costs in real-time, identifying opportunities to improve cost efficiency, and implementing lean lean manufacturing practices to reduce waste and increase productivity. 

For instance, a production manager might implement Just-In-Time (JIT) inventory management to minimize inventory holding costs, conduct value engineering to identify cost-saving opportunities in product design, or invest in automation technologies to streamline manufacturing processes and reduce labor costs.

These examples illustrate how project cost management is essential in various industries to ensure that projects are completed within budgetary constraints while maximizing value for the organization.

Several challenges can arise in the process of cost management within projects. Some of these challenges include:

1. Accurate Estimation: 

It can be difficult to accurately estimate project costs, especially in complex projects with many variables. Uncertainties in material prices, labor rates, and project scope can lead to inaccurate cost estimates, which may result in cost overruns later in the project.

2. Scope Changes:  

Changes in project scope can impact costs significantly. Managing scope creep and effectively  incorporating changes while controlling costs requires careful planning and communication with stakeholders.

3. Resource Allocation : 

Allocating resources efficiently while minimizing costs is a challenge, particularly in projects with competing priorities and limited resources. Poor resource allocation can lead to inefficiencies, delays, and increased costs.

4. Risk Management: 

Identifying and managing risks that could impact project costs is essential but challenging. Anticipating and mitigating risks such as material shortages, supplier delays, or regulatory changes requires proactive risk management strategies.

5. Vendor Management:  

Working with vendors and subcontractors introduces additional complexities in cost management. Ensuring that vendors deliver goods and services on time and within budget, while maintaining quality standards, requires effective vendor management and communication.

6. Cost Tracking and Control: 

Tracking and controlling costs throughout the project lifecycle can be challenging, especially in large, complex projects. Without robust systems and processes in place, costs can escalate quickly, leading to budget overruns and project delays.

7. External Factors : 

External factors such as economic fluctuations, changes in market conditions, and geopolitical events can impact project costs unpredictably. Adapting to these external factors and mitigating their impact on project costs requires agility and flexibility in cost management.

Addressing these challenges requires a comprehensive approach to cost management, including accurate estimation, effective risk management, proactive communication, and continuous monitoring and control of project costs. By addressing these challenges proactively, project teams can improve cost predictability and deliver projects within budgetary constraints

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Conclusion:

In conclusion, Project Cost Management is indispensable for project success, ensuring that projects are completed within budget constraints while delivering value to stakeholders. 

By implementing effective cost management practices and addressing challenges proactively, organizations can optimize resource allocation, mitigate financial risks, and increase the likelihood of project success. 

Training and certification programs, such as those offered by Bakkah Learning, provide professionals with the necessary skills and knowledge to excel in project cost management and advance their careers in the field.

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Project Budget Template for Excel

Get your Project Budget Template for Excel or open it in ProjectManager, the best way to manage your projects online.

A project budget contains the financial details of your project, including the estimates of all the project costs and the money you need to layout to lead a successful project, from resources to materials.

Monitor project expenses with this Excel budget template. It even includes color-coding to let you know when you’re in the red! The budget is the life’s blood of your project, so you need to monitor it accurately to avoid cost overruns. That’s where this project budgeting template comes in handy.

Or, better yet, build your project budget in ProjectManager. Set a budget at the creation of a project, estimate planned costs and enter actual costs as the project unfolds. Even incorporate labor rates for your team, so you can monitor resource costs during execution. Use the Gantt chart, Sheet view and dashboards to compare actual costs versus planned costs to make sure you deliver on budget. Get started with ProjectManager in minutes and start dynamically tracking your budget.

Why You Need a Project Budget Template

A project is made up of tasks that lead to the completion of a project or service. That process isn’t free. There are resources necessary, such as hiring a project team, possibly contracting vendors, maybe parts and a whole slew of other expenses that need to be paid and accounted for.

That’s where budget management comes in, during the project planning phase. It’s imperative that you calculate what the costs of these things will be as close as possible to create a realistic cost baseline, get the allocated funds and not go over budget, which could jeopardize the entire project.

That means your cost estimates have to be accurate, or as much so as you can make them. This project budget spreadsheet can help you do that.

There’s a lot of uncertainty in managing a project, which makes creating the budget plan difficult, but with a free Excel budget template you’re on solid ground to build a financial model that’s sound and able to do the job at hand.

Some of the project costs are easier to collect, such as:

• Labor costs
• Consultant fees
• Raw materials
• Software licences

Other project costs may change or carry from one project to the next, such as:

• Telephone charges
• Office space
• Office equipment
• General administration
• Company insurance

When you have downloaded and created your project budget template, there are all the fields necessary for you to get started on this pivotal project planning process. But without an expense tracking tool to collect all this data, you are starting off with a disadvantage. The budgeting process may seem like fuzzy math, and it’s certainly no exact science, but with the proper project budgeting software you can have a better handle on defining the financial constraints of your project. By doing so, you have given the project a better chance to succeed.

Besides budget templates, two such project management tools that can help you manage budgets are Gantt charts and dashboards. ProjectManager offers an award-winning Gantt chart feature that lets you apply costs directly to tasks. You can also assign labor costs to team members, and that potential cost is automatically calculated as you assign them tasks and work hours. Plus, as the project unfolds, our real-time dashboards can track project costs and compare them against your initial planned costs, so projects don’t even have to go over budget.

When To Use a Project Budget Template

Money makes the project happen, so it’s likely the costs will be discussed during project initiation. However, traditionally, budget management concerns begin to be addressed during the planning stage of a project.

You can’t figure out your budget without first knowing what it’s going to pay for. That’s why budgets are conceived as you start to plan and organize your project schedule. To make an accurate project schedule, you need to define the work that will be done and how long it will take. To do so, you can use a work breakdown structure (WBS) to identify all the project tasks. Those tasks depend on having the funds to pay for the resources needed to execute them.

Our free budget template is really a cost control mechanism to compare what it will cost to complete the project against what the project has been authorized to spend. Therefore, the budget spreadsheet template allows project managers to build their budget within the cost and time constraints of the project.

A project budget is defined by estimating costs for all the individual tasks that make up the project, including the resources needed to execute them. You’ll need those cost estimates to fill out your project budget Excel template. You can use our estimate template to make your estimates and share them with your stakeholders.

Who Should Use this Free Project Budget Template?

The buck stops with the project manager when it comes to overseeing every aspect of a project, which includes filling out and maintaining this free project budget template. They will work on the project budgeting activities, but not alone. In order to make more accurate cost estimates, project managers will seek guidance from those people on the project team who are involved in executing the project.

Once the project budget has been completed, the team will be released to focus on the tasks they’ve been assigned. The budget management will remain the purview of the project manager, but depending on the size of the organization, the day-to-day work might go to an administrator, such as a project coordinator or assistant project manager.

However, the project budget is also shared with stakeholders. They need to stay in the loop and often have change requests throughout the project that will directly impact the budget. Therefore, during stakeholder presentations, budgetary issues are usually part of the agenda, if only to determine if the project is not going over budget.

How to Use ProjectManager’s Project Budget Template for Excel

Your free Excel template is a blank slate and now you have to turn it into a useful tool. By filling in as much of the information requested in this project budgeting template as you can, you begin to get control over the financial aspect of your project. Let’s start.

Labor and Materials

This is the meat and potatoes of the project, and likely the most expensive aspect of the work you have to include in your project budget Excel template. To start with, you want to use a work breakdown structure to separate these into line items tagged to a specific task. This may seem like an unnecessary detail, but it’s not. Every dollar needs to be accounted for if you want to reign in costs, so the more exact you can be the better your expenses estimate will be and the closer your project will come in within budget.

Now that you’ve broken down your project into the small tasks that make it up using the work breakdown structure or WBS column, it’s time to assign a labor and material cost to each. This is the money you’re going to spend on assembling the team responsible for each task, the time they’ll take to complete it and the materials they’ll need for those tasks. It’s a lot of work, but by doing it before the project begins, you’ll save yourself headaches and over-expenditures.

Other Line Items

Of course, a project budget is not only labor and materials, even if that is the heavy lifting. It’s important to account for every dollar and cent, and those smaller items—and sometimes not-so-small items—are going to add up. Don’t let these costs break your budget: find them and then collect them on your free Excel project budget template.

Take travel, for example. Your project budgeting template needs a column in which you note when and if you have to travel, and then how much that will cost, including any stipend. Maybe travel doesn’t plan in your project, but you need to consider it. Better to have thought it through and dismissed it, than to have a cost come up in the midst of the project that you’ve not accounted for.

The same goes for equipment. You’re definitely going to have costs in this area. Equipment costs can vary from very expensive heavy equipment to minor ones, but you have to register those expenses in your project budget template in order to make an educated guess of what the project is going to cost.

Fixed Items

There are fixed items, too, and there’s a place for you to collect them on the free project budget template for Excel. A fixed budget item is one where the amount is set and doesn’t change, as in one that is the same amount every week or month. There’s also a column for miscellaneous costs, which are those that do not fit into any of the other categories on the downloaded project budget Excel template.

Planned v. Actual Budget

The last part of your free Excel project budget template is the columns that you’ll be most interested in following when tracking the project. It’s here that the spreadsheet calculates the planned budget against the actual one or the real money you’ve spent for that task. One column is your estimated budget expenditure and next to it is the money that really went to completing the work, followed by a third column in which your balance is noted. Here is where you can see if you’ve gone over- or under-budget.

How to Use a Project Budget Excel Template in ProjectManager

If you’re ready to move on from a static Excel budget template to a robust project management software, look no further than ProjectManager. It’s easy to transfer your data over from the Excel sheet into the software. All you need to do is start a new project and open up the Gantt chart project view.

Once you’ve started your project, you can transfer the info from your filled-out Project Budget template into the Gantt chart manually. The same rules apply – just type in the task names, the assignees, the planned hours, the project costs and so on.

Now that your project is filled out in ProjectManager, you can get to work tracking the costs as your project progresses. That’s because the budget is updated as team members complete tasks and update their status, giving you the most up-to-date information. Then you can look at the budget for the project or even many projects through the dashboard view . Think of it as an overview at-a-glance, but it’s also able to drill down deep into the detail you need when you need it.

What Other Project Management Templates Can Keep My Project on Budget?

The project budget template is a great tool to figure out how much your project will cost and make sure that number is within the approved funding for the project. However, there are other project management templates that can help you control costs and manage areas of the project that can impact your overall budget.

Timesheet Template

Use a timesheet template to keep track of your team’s time spent on their tasks, including cost per hour, vacation and overtime. Timesheets from past projects can help you estimate your project budget based on how much time was logged for tasks in the past. It also keeps an eye on your bottom line, showing how profitable your effort is and providing clues to add greater efficiencies.

Work Schedule Template

Another way to monitor your labor costs is with a work schedule template. This template lists your team and where they’re working, what time and what responsibilities they have over the week or month. This information is crucial to working more productively and managing costs. It helps you reduce resource costs, which makes your budget go further.

Risk Tracking Template

Risk is always on the horizon of a project, threatening to impact your budget. A risk tracking template collects those risks as you identify them and allows you to do a risk assessment to rank their priority and then track them as your team resolves the issue. Having a tool to manage risks as they arise in your project gives you the means to control them and the costs associated with those risks.

We have many other project management Excel templates that you can use to manage your projects.

Watch a Budget Tutorial Video

For more information on how to create and manage a project budget, watch the video below. Jennifer Bridges, PMP, gives you a number of crucial tips that can help you get the most out of your project budget template.

More Related Content

There’s more than a great software package available on the ProjectManager website. We regularly publish a blog with articles and videos on project management, leadership, and business concerns. Here are four that are relevant to project budgeting.

• Project Budget Proposal Template
• Project Documentation: 15 Essential Project Documents
• 7 Steps for a Successful Project Budget
• 6 Ways to Track Project Expenses
• Keeping Projects Under Budget
• 7 Tips for Preventing Cost Overrun on Projects

If you want to take your project to the next level, then you’ll want to work with project management software that has the tools to plan, monitor, and report on your project in real-time. Our free budgeting template helps with budget management and expense tracking, but our Gantt charts and dashboards are superior budgeting tools that automate the budget planning process and offer you many more project management features. See for yourself by taking advantage of our free 30-day trial offer.

Start your free 30-day trial

Deliver faster, collaborate better, innovate more effectively — without the high prices and months-long implementation and extensive training required by other products.

Estimating Cost of a Project: Techniques and Examples

Estimating cost is an important process in project management as it is the basis for determining and controlling the project budget. Costs are estimated for the first time at the beginning of a project or even before a project has started. Subsequently, the (re-)estimation of the project cost is repeated on an ongoing basis to account for more detailed information or changes to the scope or timeline.

For instance, if the earned value management measures that are used for controlling project cost indicate significant variances from the budget, a re-estimation of the cost and schedule and a revisiting of the overall budget can be inevitable.

The methods introduced in this article are tools and techniques of the “Estimate Costs” process that is part of PMI’s Knowledge Area “Project Cost Management” (see PMBOK®, 6 th edition, ch. 7.2).

What Is a Cost Estimate?

Rough order of magnitude vs. definitive estimate, estimate to complete (etc) and estimate at completion (eac), when are cost estimated, why is cost estimation important in project management, comparison of estimation techniques, expert judgment       , analogous estimating , parametric estimating, bottom-up estimating, three-point estimating.

A Cost estimate is a quantified expectation of how many resources are required to complete a project or parts of a project.

Such cost estimates are often expressed in currency units. However, other units such as man-days can also be used if the currency amounts are not applicable or irrelevant.

There are different types of cost estimates. The Project Management Body of Knowledge lists the rough order of magnitude (ROM) and the definitive estimate. Both types differ in respect of their accuracy, the project phases in which they are used as well as the available tools and techniques. Some projects use additional, sometimes industry-specific types of estimates.

Cost estimating involves different tools and techniques which typically include

• Expert judgment,
• Analogous estimating,
• Parametric estimating,
• Bottom-up estimating,
• Three-point estimating, and
• Cost of quality.

Read on to learn the details of these techniques, supplemented with examples and practical considerations.

What Are the Types of Cost Estimates?

According to the PMBOK®, there are 2 types of cost estimates:

• Rough order of magnitude (ROM) with an accuracy of -25% to + 75% (other frameworks quote a range of +/-50%) and
• Definitive estimate with an accuracy range of -5% to +10%.

Some sources also list so-called preliminary estimates and budget estimates as further gradations of estimate types. There are also industry-specific types of estimates such as design and bid estimates in construction projects ( source ). However, the current PMI project management framework only refers to the 2 above-mentioned types.

If the budget has to be revisited part way through a project, a so-called estimate to complete (ETC) is determined.

The obvious difference between these 2 types of estimates is the accuracy: the ROM is rather inaccurate with a broad range of possible outcomes. It is therefore typically used in project initiation phases where a ballpark figure is sufficient to get a project started.

The definitive estimate is determined in the course of the project when more information and resources for accurate estimates are available.

Read this article for more details on the ROM and the differences between ROM and definitive estimate .

If partway in a project it turns out that the budget baseline (based on previous estimates) cannot be met, a re-estimation of the project cost is required.

This is done by determining an estimate to complete (ETC) which is used to calculate a new estimate at completion (EAC) that replaces the initial budget at completion and thus becomes the new cost baseline of a project.

Costs are estimated at different points in time throughout the project. The PMBOK states that the process is performed “periodically throughout the project as needed” (source: PMBOK®, 6 th edition, ch. 7.2).

The first point to estimate cost is during the initiation phase, e.g. when the project business case or the project charter is created. For these documents, a project manager has to determine the amount of resources that is required to complete the project.

As the information that is available at that point is usually not very detailed, the project manager will likely end up producing a rough order of magnitude estimate rather than a definitive estimate. Later in the project when more information is available, this order of magnitude estimate will be replaced with a definitive estimate.

After the project initiation phase, the cost will be re-assessed during the planning phase, using the techniques introduced in this article.

In subsequent phases, costs are typically (re-)estimated if relevant new information and details become known or if changes to the project scope or timeline occur. One of the common reasons for re-estimating cost is, for instance, when the indicators of the project controlling suggest that the original budget baseline cannot be met.

Estimating costs is one of the core activities of project management and planning. This is because a project is defined as being subject to at least three fundamental constraints : scope , budget and time. Cost estimates are obviously addressing the budget constraint; hence they are highly relevant for the management of a project. The initial rough cost estimate is usually included in the project charter as well as in the business case of a project.

The estimation of costs is also necessary to compute the project budget which is subject to the approval of the project sponsor(s). In fact, the process “determine budget” uses a technique called “cost aggregation” which directly refers to the outputs of the “estimate cost” process.

Cost estimates are the basis for allocating budget to work packages and deliverables which can be politically sensitive within a project as well as among its stakeholders. Therefore, budget determination and assignment require some stakeholder involvement, communication and, in many cases, their approval.

In addition, cost estimates are input parameters for the earned value and variance analyses as well as forecasting of project costs .

Tools and Techniques for Estimating Project Cost

This section provides an overview of the tools and techniques for estimating project costs. These methods refer to chapter 7.2.2 of PMI’s Project Management Body of Knowledge .

Click on the links to the detailed articles on these techniques to find further explanations and practical examples.

This table compares the approaches to estimating project costs and highlights the differences between these techniques.

This technique is suggested by the PMBOK (ch. 4.1.2.1) as a way to produce a cost estimate.

If you or your team have experience with the kind of work that is in the scope of a project, you can use expert judgment to produce an estimate. This requires a certain level of familiarity with the subject of a project and its environments such as the industry and the organization.

Expert judgment can be applied to both bottom-up and top-down estimating. Its accuracy depends greatly on the number and experience of the experts involved, the clarity of the planned activities and steps as well as the type of the project.

Two examples of expert judgment are:

• Estimating the rough order of magnitude at the beginning of a project. At that time, estimates are often performed top-down due to a lack of team members. more accurate estimation techniques (such as parametric estimating) may also not be available due to a lack of data.
• (Re-)estimating the efforts needed to generate the deliverables of a work breakdown structure (WBS) by asking those responsible for work packages and activities to estimate their resource requirements. This type of expert judgment can lead to comparatively accurate results.

Besides being an estimation technique on its own, expert judgment is also inherent to the other estimation techniques. For instance, if the comparability of previous work and the current project is assessed or adjustments to parametric estimates are determined.

Analogous estimating refers to the use of observed cost figures and related values in previous projects (or portions of a project). In order to be accurate, the type and nature of these reference activities must be comparable with the current project.

“Analogous estimating, also called top-down estimating, is a form of expert judgment.” Source: Heldman, Kim. PMP: Project Management Professional Exam Study

This technique uses historical data in the form of values and parameters to determine the expected resource requirements of a current project. The historic values are adopted for the current work and can be adjusted for differences in scope or complexity. Analogous estimating is categorized as a gross value estimating approach.

In general, analogous estimates are used if a project has access to historical data on similar types of work while the details and resources for more accurate estimates in the current project, such as parametric or bottom-up estimating, are not available.

Parametric estimating is a statistical approach to determine the expected resource requirements. It is based on the assumed or proven relationship of parameters and values. Simple examples are the building cost per square foot in construction projects or the implementation cost per data field in IT projects.

If, for instance, the cost of implementing a new data field in an IT system were $20,000 according to historical data, and a project required 15 new data fields, the total cost of this part of the project would be 15 x $20,000 = $300,000.

The input data can be obtained from previous projects or external data sources such as industry benchmarks or publicly available statistics.

In practice, this technique is employed with a broad variety of sophistication and accuracy. It can be used with a simple ‘rule of three’ calculation but also in conjunction with a complex statistical or algorithmic model that may consider multiple quantitative and qualitative parameters for detailed regression analyses.

In projects that do not use an explicit statistical correlation analysis, some expert judgment is required to assess whether it would be reasonable to apply the historic parameters to the current project. Complexities of projects and activities vary and may therefore require certain adjustments.

For instance, building a highway in a mountainous region likely produces a higher cost per mile than in a flat area. IT development projects in complex IT architectures or systems tend to require more resources than a less complex environment.

Another consideration concerns the expertise and experience of the project team. If a previous project was delivered by highly skilled and experienced resources while the current team is just at the beginning of its learning curve, using unadjusted historic data may understate the estimated cost.

Similar to analogous estimates, adjustments can be made to adapt the parametric estimates to the current project.

Depending on the quality of the input data and its applicability to the current type of work, the parametric estimation technique can produce very accurate figures. However, the higher the accuracy desired the more resources are needed to perform the data gathering and statistical analyses.

Bottom-up estimation refers to a technique that involves estimating the cost at a granular level of work units. The estimates for all components of a project are then aggregated in order to determine the overall project cost estimate.

In practice, these estimates are often performed at the lowest level of the work breakdown structure (WBS), e.g. for work packages or even activities.

While there is no clear rule on who should be performing this estimation, it seems to be a good practice in project management: asking those project team members who are operationally in charge of the respective work packages or activities to estimate there on work.

Thus, this approach to estimating costs often comes with significantly higher accuracy than top-down estimations. However, obtaining and aggregating these granular estimates normally requires some resources and can potentially become a political challenge, especially in large or complex projects.

Three-point estimating is a technique that usually leverages on bottom-up estimates, analogous or expert estimates. The concept requires three different points of estimates: the optimistic (best case), pessimistic (worst case) and the most likely cost estimate.

Based on these 3 points, a weighted average cost estimate is determined that overweighs the “most likely” point. This can be done by assuming a triangular distribution, a PERT or beta distribution.

Read this article for further explanation and examples of this technique.

In this article, we have discussed the techniques of cost estimating as suggested by the PMBOK. Note that the level of detail and granularity of the estimates usually increases throughout the project.

In the initiation phase, the rough order of magnitude (ROM) is often the only type of estimate that can be obtained. Definitive estimates will usually require techniques such as analogous, bottom-up and parametric estimating that may only become available in later stages of a project.

Parametric and bottom-up estimates are usually the techniques that provide the most accurate cost projections. They are commonly used if the budget needs to be revisited and replaced with a new estimate at completion.

When a budget is determined and approved, earned value analysis and variance analysis help project managers control the cost and value generated in a project. You will find more details on the measures and the techniques in this article .