How to work with project costs and budgets

- [Voiceover] Because most projects have a budget, cost management includes processes to ensure that your project comes in within that budget. During planning, you put together a cost management plan that spells out how you're going to handle costs in the project. Next, you pull planning info together, like your work breakdown structure, schedule, and estimated resources so you can estimate project costs.

There are many estimating techniques to choose from, such as expert judgment, parametric estimating, and bottom-up estimating. The methods you choose depend on the project and your organization. Cost estimates improve over time as you learn more about the project. For example, during initiation, your cost estimate is often a rough order of magnitude, something like plus or minus 75%.

Once work is underway, however, you may be able to estimate within five or 10%. For some projects, the cost estimate becomes the budget. However, many projects are given a budget to meet. In that case, you may need to juggle scope, resources and schedule until the cost estimate matches the budget. Once work begins on your project, you monitor status and track actual costs.

If actual costs for completed work are greater than baseline costs, you can take corrective action to reduce cost overruns. That's how cost management helps you complete your project within budget.