Cost Management Cheat Sheet
PMP cost management quick reference — estimating techniques, budgeting, cost baselines, and reserve analysis.
Cost Management — Quick Reference
Estimating Techniques
| Technique | Accuracy | When |
|---|---|---|
| Rough Order of Magnitude | −25% to +75% | Initiation (very early) |
| Analogous | −15% to +25% | Early planning, limited info |
| Parametric | Varies (can be very accurate) | Statistical relationship exists |
| Bottom-Up | −5% to +10% | Detailed planning, work packages defined |
| Three-Point (PERT) | Depends on range | When uncertainty exists |
Budget Components
Cost Baseline = Work Package Estimates + Contingency Reserves
Project Budget = Cost Baseline + Management Reserves
- Contingency Reserves — For identified risks (PM can use without approval)
- Management Reserves — For unknown risks (requires management approval)
Key Cost Concepts
- Sunk Cost — Money already spent; should NOT influence future decisions
- Opportunity Cost — Value of the next best alternative not chosen
- Fixed Costs — Don't change with production volume (rent, equipment)
- Variable Costs — Change with production volume (materials, labor)
- Direct Costs — Directly attributable to the project (labor, materials)
- Indirect Costs — Shared across projects (overhead, utilities)
- Depreciation — Straight-line (equal/year) vs. Accelerated (more early, less later)
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