Cost Management

Cost management provides a consistent approach to estimating, managing and controlling costs to ensure that a project is completed within the approved budget.

Implementing standard cost management principles promotes the analysis and management of groups of projects at a “portfolio” level.  It also produces  consistency in estimating and managing project costs by: 

  • Helping Project Managers to create accurate estimates that can be compared to other projects
  • Capturing assumptions, risks, and uncertainties
  • Ensuring estimates are updated at milestones and in the event of changes to schedule, major item quantities or unit costs, and scope.
  • Clearly defining the level of confidence associated with cost estimates.

The Cost Management Plan describes the process that the Project Manager will use to create and update the project cost estimate as follows:

  • The initial Base Cost Estimate includes preconstruction and construction costs (does not include contingency) and will be calculated using the Project Cost Planner Tool.
  • The PM will update cost estimates as well as drawdown data in SAP using the Project Portal.
  • The PM will update cost estimates at Major Milestones (FIR, FOR, Final PS&E) and in the event of changes.

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Risk Reserve

Contingency (called Risk Reserve) captures costs associated with uncertainty related to unknowns (risks) and unit prices. Risk Reserve is calculated using Risk Based Cost Estimating (RBCE), a method of estimating that:

  • Applies statistical modeling to the base cost estimate to generate a range for the cost associated with uncertainty.
  • Changes as project development matures through Scoping, FIR, and FOR. As “knowns” increase, the unknowns and the need to hold Risk Reserve decrease.

How do you calculate RBCE?

  1. The PM will estimate the Base Cost using the Project Cost Planner Tool. Base cost is the expected cost if the project materializes as planned and there is no occurrence of risk. It includes known and quantified items and known but not quantified items.
  2. The next step is to estimate the Risk Reserve, the estimate of costs associated with identified uncertainties primarily as a function of level of design development. PMO HQ staff and/or the Region PMO Representative will calculate Risk Reserve using an Excel tool called @Risk.
  3. PMs will enter the Risk Reserve amount in the SAP Project Portal - Budget Detail Section, in the column labelled “Project Planned.”
  4. The PM will use the Project Cost Planner Tool to update the Base Cost Estimate at FIR and FOR milestones.


How do you manage Risk Reserve?

  1. If the PM determines that Risk Reserve is needed to augment the budget in any of the RUDEMC categories, RE approval may be required.
  2. Risk Reserve Planned Amount ideally will reduce to zero after construction award; construction phase contingency is held in Force Accounts