Cost of a Project

Cost Management

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IT projects have a poor track record for

meeting budget goals

The CHAOS studies found the average cost

overrun (the additional percentage or dollar

amount by which actual costs exceed

estimates) ranged from 180 percent in 1994 to

43 percent in 2010

A 2011 Harvard Business Review study reported

an average cost overrun of 27 percent.

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The U.S. government, especially the IRS, continues to

provide examples of how not to manage costs

◦ A series of project failures by the IRS in the 1990s cost

taxpayers more than $50 billion a year

◦ In 2006, the IRS was in the news for a botched upgrade to its

fraud-detection software, costing $318 million in fraudulent

refunds that didn’t get caught

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The United Kingdom’s National Health Service IT

modernization program was called the greatest IT

disaster in history with an estimated $26 billion

overrun. It was finally scrapped in 2011.

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Cost is a resource sacrificed or foregone to

achieve a specific objective or something given

up in exchange

Costs are usually measured in monetary units

like dollars

Project cost management includes the

processes required to ensure that the project is

completed within an approved budget

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Planning cost management :determining the

policies, procedures, and documentation that will

be used for planning, executing, and controlling

project cost.

Estimating costs: developing an approximation or

estimate of the costs of the resources needed to

complete a project

Determining the budget: allocating the overall

cost estimate to individual work items to establish

a baseline for measuring performance

Controlling costs: controlling changes to the

project budget

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Reserves

◦ dollars included in a cost estimate to mitigate cost

risk by allowing for future situations that are

difficult to predict

◦ Contingency reserves

 allow for future situations...