6.4 Cost Management
The objective of the project cost management is to en sure that the project is completed within the authorized budget. The major processes involved in the co st management are: resource planning, cost est imation. cost budgeting/cost planning and cost monitoring and control. The resource planning involves determination of various types of resources, such as appropriate technology, workforce, materials, equipments and infrastructure facilities, their quantum and their requirements during different stages of the project. Preliminary cost estimate with defined scope of work is required for obtaining the project sanction.
Detailed item wise cost estimates with bill of quantities and specifications should he made for tendering and subsequent project execution. The type of contract adopted such as item rate, percentage rate, lump sum and cost plus, influences the cost management strategy.
Most of the cost optimization techniques through value management studies arc achieved during the pre -construction stage of the project. Value management is a useful technique for application in cost management. It is a systematic multi-disciplinary effort directed towards analyzing the functions of project or item for the purpose of achieving the best value at the lowest overall life cycle project cost, It is an established technique for determining value based decisions rather than cost reduction based on change in specifications .
Suitability of construction techniques, selection of equipments for specific purposes, considering alternative materials and other design changes are some of the areas of application of value engineering .
During construction stage, the efforts are more on control mode for adherence to the budgeted cosl. For the purpose of cost control during execution, the time based cost baseline of the project which forms the basis for the measurement and monitoring of cost performance. should be generated. The cost baseline is generated by allocating the overall cost estimate to individual project activities based on the project schedule . Using the cost baseline, the cost control, which comprises the following , should he exercised :
a) Periodical cost reporting,
b) Comparison of the actual cost against the planned cost,
c) Obtaining early warning for corrective actions,
d) Control and monitoring cost chanres,
e) Forecasting of final cost at completion based on cost trend and cost changes, and
f) Modification of the cost baseline for authorized cost changes and preparation of revised estimates.
