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6.3 Cost Planning
Cost management ensures that the project is delivered within the approved budget. It is more than just spending; it is about Value Engineering and Fiscal Ethics.
🏗️ The Budget Architecture
A PMP budget is built from the bottom up, with layers of protection.
Activity Estimates
The base cost of work packages, including labor and materials.
Contingency Reserve
For "Known Unknowns". Part of the Cost Baseline. Under PM control.
Cost Baseline
The Performance Mark
Used to measure EVM (Earned Value Management) performance.
Management Reserve
For "Unknown Unknowns". NOT part of the baseline. Under Sponsor control.
📊 Estimation Techniques
Which method is right for your project?
| Technique | Description | Stability |
|---|---|---|
| Analogous | Based on past projects. Quick but less accurate. | Low |
| Parametric | Based on math ($ per sq foot). High accuracy if data is good. | Medium |
| Bottom-Up | Estimating every activity and rolling it up. Most accurate. | High |
| Three-Point | (Optimistic + Pessimistic + 4*Most Likely) / 6. (PERT). | Uncertainty |
💰 The Total Project Budget
Total Budget = Cost Baseline + Management Reserve.
- If a major risk occurs that wasn't planned (Unknown Unknown), you must ask the Sponsor for the Management Reserve.
- If a risk occurs that was in the risk register (Known Unknown), you use the Contingency Reserve.
🛠️ 2026 Focus: Value Engineering
Cost planning in 2026 is not just about cutting costs. It's about Value Engineering: Finding ways to deliver the same strategic value at a lower cost without sacrificing quality or sustainability (ESG).
📝 Exam Insight: If an unforeseen disaster (not in the risk register) occurs, you need Management Reserve. This requires a formal change request and Sponsor approval.