6.1. Introduction

Cost is a resource sacrificed, foregone, or consumed to achieve a specific objective or something given up in exchange for something in return. In the context of project management, resources are spent in exchange for profits. Project cost is usually measured in monetary units. Calculation of project cost considers the requirements of all project stakeholders, who need project cost–related information in different ways at different points in time. Costs associated with a project are the costs of equipment, material, and human resources required to complete all the activities of a project. Accurate project cost estimation is difficult, because of the uncertainties inherent in project execution, particularly so in the case of complex projects. However, if project costs are effectively managed, predicted, accounted for, and controlled, the gap between planned costs and actual costs could be kept to a minimum or, sometimes, even made zero. The foundation of a good project cost estimate is an accurately developed work breakdown structure (WBS). The ability of stakeholders to influence project cost is greatest in the early stages of project execution, which is why early scope definition is critical: Overall project cost can be fixed on the basis of a clearly defined scope.

Project cost management refers to the processes involved in planning, estimating, budgeting, and controlling cost to ensure that the project is completed within the approved budget and time. On projects of narrow scope, cost estimating and cost budgeting are so tightly linked that project managers look at them as a single process. A person who is very good or bad in one trait may be assumed to be as good or bad in all other traits. For example, a project leader who is technically good may be promoted as project manager assuming that he/she is (or will be) good in project management aspects also. This is called the halo effect.