DISPOSICIONES TRANSITORIAS PRIMERA. Regularización de ajustes extracontables

Cost management is an integral part of any project and it consists of the variables allow- ing the organization to ensure that the project is going to be completed within the desired financial targets (Parviz, 2002; Kerzner and Kerzner, 2013, p.7). Tanaka et al. (1993 p.13) describe cost management as a set of activities and decisions that improve the cost-efficiency of the organization. Some cost management operations are executed not only throughout a projects’ lifecycle but additionally throughout the whole life span of the organization (Tanaka et al., 1993). Thus, cost management can be titled a continuous development process. The essential components of the cost management practice in- clude resource planning, cost estimation, budgeting and cost control (PMI PMBOK, 2001), although, depending on the business peculiarities some additional functional ele- ments can be observed. The components of the project cost management are shown in Figure 13.

Figure 13. Project cost management.

Resource planning is a necessary component for cost management (PRINCE2, 2017, p.95-105). The aim of resource planning is to identify the resource requirements neces- sary for successful project delivery. To attain the resource requirements, several infor- mational inputs are required – WBS, historical information, organizational policies, scope, resource pool and duration estimates (PMI PMBOK, 2001). Cost estimating pro- duces a quantitative estimation of costs, which is used in pricing, bidding, and negotia- tions during the preparation phase of the project. The required inputs for a successful cost estimate, according to PMI PMBOK (2001) are WBS, resource requirement, re- source rates (i.e. hourly wage), activity durations, historical data, risk identification, and clearly defined cost account structure.

Cost budgeting is the process of allocation of the cost estimates to specific activities or work packages, with the aim of establishing a cost baseline for a project (PMI PMBOK, 2001). In order to generate a successful cost baseline, individual cost estimates, WBS,

Project cost management

Resource planning Cost estimating

Cost budgeting Cost control

schedule and risk management plan need to be available. Cost control is a practice of identifying and managing changes in the identified cost baseline (Taylor, 2007). Cost baseline, performance reports, and change reports and requests are necessary in order to carry out the control phase successfully. The results of cost control are manifested as revised cost estimates and budgets, lessons for future budgeting and cost estimation, corrective actions and successful project closing in terms of required documentation and reports. As can be noticed from the above-listed, all the elements of cost management are interconnected.

Remarkably, throughout the cost management literature, many authors and researchers emphasize the importance of readily-available relevant and reliable cost information for effective cost management (Tanaka et al., 1993; Stewart and Wyskida, 1987; Parviz, 2002, Venkataraman and Pinto, 2008; Artto et al., 2011). Additionally, it is emphasized that in order to be effective, cost management should be supported by all parts of the organization and be treated more like a policy to achieve standardization.

The goal of cost management is to reach the project objective together with the accepta- ble quality level within the established cost baseline. Parviz (2002) concludes that in order for the cost management process to be effective, it needs to be formalized and standardized as well as integrated with each function across the company. When effec- tive, cost management enables tracing and tracking the performance of the project and analyzing the impacts of schedule and cost deviations on the success of the project completion. Additionally, Stewart and Wyskida (1987) emphasize the importance of cost analysis as a part of cost management practice, as the processed information and the lessons learned from the previous projects form a valuable fundament for future cost estimation and budgeting in a form of historical data.

Tanaka et al. (1993) define other requirements for effective cost management, such as timely product plans, aiming at generating profits, availability of cost to show the sources of profit and availability of relevant cost information and capabilities at the preparation stage. Artto et al. (2011) state that cost management practices follow the whole duration of a project’s lifecycle to assess final profitability. Additionally, the researchers empha- size that cost management is an integral part of project management, meaning that it is affiliated with the other operations and processes that affect the revenue, such as re- source and schedule management.

One example of a cost management strategy is target cost management, which is also considered a technology or product management strategy (Tanaka et al., 1993, p.35). Target costing originated in Japan as a measure to battle challenging market conditions

and fierce competition (Angéniol et al., 2005). Target cost management (TCM) is used to attain an estimation and manage the costs over the entire product’s lifecycle, keeping the offering competitive in the market. Target costing is a reverse costing method, which allows eliminating non-value adding activities to reduce the production costs and allows the product to enter the production phase only when the lifecycle cost of the product is lower than the estimated target cost (Gonçalves et al., 2018).

Another cost management strategy that is quite often brought up in conjunction with the target cost management is a design-to-cost (DTC) strategy. DTC is a product develop- ment strategy that emphasizes the design’s convergence on costs, in other words, costs are considered as a parameter in design instead of being a target to reach (Angéniol et al., 2005). This strategy was invented by the American Department of Defense as an attempt to alleviate the constant cost overruns. With that technique, the cost is treated as an economic internal constraint, allowing for a more efficient cost control over the planning and design stages of production (Tanaka et al., 1993). The difference between the TCM and DTC is that the cost is considered from the external perspective in TCM while acting as an internal determinant in DTC.