Essay on IT Project Cost Management

It is important to understand that what project’s cost management before relating it to IT or any other industry. Cost management is one of the most crucial and essential elements of a project, because it is a process which is concerned with planning as well as control of project within the given budget. There are many things to look at in cost management so that nothing exceed the limit of given budget and various activities are performed for that purpose such as estimating & planning that how much budget is needed, and what kind of funding and financing will be done. Moreover, how relevant costs of the project will be controlled and managed so that everything remains in the limit, and project does not face any issues. It is important to mention here that cost management covers the whole project from its start till its completion, and all costs will be included so that project is completed as per requirement (Rad, 2001)

Generally, it has been observed that cost management element has not been very efficient in managing IT projects. It has been seen over time in many information technology projects that costs have been estimated inaccurately, which may lead to failure of an IT project. The project managers in IT project management have to understand the importance and criticality of cost management in their projects because a failure in IT project can be very costly in so many ways. The project managers should understand the fact that they have to properly plan and estimate costs in IT project along with accurate cost control & budgeting so that project can be handled accordingly. The cost management is extremely vital for an IT project because success of a project is based on this important element. IT project takes a lot of time as well as resources to get completed, and all the efforts can go in vein if proper cost management was not done, and project is stuck somewhere before its completion. So, IT project’s success is very much based on its cost management, otherwise consequences can be devastating (Schwalbe, 2008)

 The IT project management has to go through various steps so that project can be managed as per requirements of an organization and one of important steps is planning of the cost management. The project managers will look at different elements to define that what kind of resources with how much amount is needed to successfully complete the project. This planning is vital to ensure that project expenditures are estimated accurately so that a project may not exceed the limit of its budget. The IT project managers can handle this process by effectively estimating and assessing costs for each work process to be handled during the project. The work breakdown structure can be helpful in this regard. For instance, the project managers can break down an IT project by through various aspects such as its engineering, design, development as well as fabrication. They can plan that which kind of software and hardware will be needed, and what possible costs will be associated with them (Rouse, 2010)

The cost estimation is very critical element in cost management of an IT project so that proper and required resources are allocated accordingly. So, IT project managers can look at various types & methods of cost estimation to handle this process effectively. One such method is called Order of magnitude estimate, and in this process only rough estimates are made about costs. It means only general costs and expenditures are estimated rather basing the cost estimates on any specific deliverables and activities of a project. It is a good method to have a rough idea about overall costs. The other considerable method is Definitive estimate, which asks for a detailed estimation of costs for each step and activity of an IT project so that definite budget is allocated, which is near to perfect to complete the project. One more method for cost estimation is making preliminary cost estimate. This method is better than order of magnitude method because it helps to develop a preliminary list of itemized expenditures, and this list has its basis on primary elements of a project (Yeung, 2018)

The earned value management (EVM) can be a critical too to not only control costs, but managing cost performance as well. It is a great technique to measure costs as well as tracking relevant expenditures to assess performance of the project. During the implementation of earned value management, various steps are handled, which can be analyzed to see that how each step plays its part in cost performance and cost control. The first step is called Planned Value (PV), and in this step the budgeted cost of an IT project can be represented. The second step is named as Actual Costs (AC), which allows analyzing costs which have been incurred for work that has already been performed. It can help in analyzing the costs so that they can be controlled for further steps. In next process of Earned Value (EV), this allows to attain total budget that has been used for completed work at certain point of time in a project. Cost Performance Index is another element of EVM which helps to measure the completed work against costs, which actually have been incurred. Schedule Performance Index process is important to assess project performance as it analyze that how much work of a project has been done so for by looking at the overall plan of the progress chart (RODRIGUEZ, 2018)

The basic example is going to be described by looking at the processes involved in determining the costs of an IT project. For instance, if a company is looking to change its current software and hardware to manage business processes, then there will be various processes to determine the costs. First process will be to list all the hardware and software needed for the project to be completed. Then calculate estimated costs that what costs will be associated with each part of a hardware and software to be implemented, and each step of implementing this process should also be analyze in terms of costs. Moreover, it is important to look at resources that which resources will be required to manage the IT project. For example, if various IT experts are needed, then calculate the costs that how much they will cost for their services etc. all labor costs should also be estimated along with any other relevant costs so that a proper estimate and calculation is made in the end. It can be concluded in the end that cost management of an IT project is a complex process and it needs a lot of focus, analysis and measurements so that things can be managed properly and effectively. 

References of IT Project Cost Management

Rad, P. F. (2001). Project Estimating and Cost Management. Berrett-Koehler Publishers.

RODRIGUEZ, J. (2018). How To Control Cost: Earned Value Management Basics. Retrieved April 28, 2019, from https://www.planacademy.com/controlling-cost-earned-value-management-basics/

Rouse, M. (2010). Key IT metrics: A CIO guide: cost management. Retrieved April 28, 2019, from https://whatis.techtarget.com/definition/cost-management

Schwalbe, K. (2008). Information Technology Project Management, Reprint (5th Edition ed.). Cengage Learning.

Yeung, N. (2018). Three types of cost estimation in projects. Retrieved April 28, 2019, from https://www.profolus.com/topics/three-types-of-cost-estimation/