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7 - PROJECT COST MANAGEMENT

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PROJECT COST MANAGEMENT

Most of the material in Section 7 of the PMBOK Guide is applicable to cost management for software projects.
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This section of the Software Extension to the PMBOK Guide presents additional considerations for managing
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software project cost.

As stated in the introduction to Section 7 of the PMBOK Guide, Project Cost Management includes the 7
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processes involved in estimating, budgeting, funding, managing, and controlling costs so that a project can be
completed within the approved budget. This section of the Software Extension to the PMBOK Guide discusses cost
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management for software projects.
Large corporations and government agencies develop many new software products and modify hundreds of
existing products each year. Small companies may develop or modify fewer software products, but those products may
be the essence of the company’s business. As a result, project cost management is a mainstream activity for every
organization that builds software; it has become a critical process for the success and survival of many organizations.

As indicated in Section 6 of this Software Extension, effort and schedule are closely related for software projects
because effort is the product of people and time. Because staff-hours is the primary cost factor for software
development, effort estimation is used as the basis for estimating the cost of a software project. Additional costs
may be included as an overhead percentage on the cost of effort. Many companies do not disclose the resource
rates (dollar-value) to the project manager. A software project manager can manage project costs in units of staff-
hours instead of monetary units when the resource rate for the staff-hours is not provided.

The effort required to develop or modify software is almost entirely dependent on the skills, abilities, and
motivations of individual team members, the interactions among team members, technical leadership, project
management, and the culture and organizational processes in the software development environment. Cost
management for software projects includes making initial estimates and updating them periodically, and may
include identifying and forecasting the cost of maintaining and evolving a software product plus licensing or
updating commercially acquired components over many years. Managing software project costs with this amount
of variability is difficult even when a software project manager has a significant amount of experience.

This section of the Software Extension addresses effort estimation, in addition to other aspects of managing
software project cost, to help software project managers understand the impact of the variability of software cost
drivers on software project costs. When using adaptive life cycle models, which maintain flexibility as late into the
development process as possible, software project managers still need to estimate the effort (cost) and schedule
of their projects. However, the volatility of project attributes, such as rapidly evolving technology, changing and
emerging architecture and requirements, and the varying productivity of software developers, has a significant
impact on cost estimation and cost management.

©2013 Project Management Institute. Software Extension to the PMBOK Guide Fifth Edition 119
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