Introduction to Project Cost

Management, Plan Cost

Management
Week 2
 Project Cost Management

• According to PMBOK guide, project cost management knowledge area includes the process
involved in Planning, estimating, budgeting, financing, funding, managing and controlling
cost to complete the project within the approved budget.
• There are three constituents cost management processes in planning process group.
Plan cost management.
Estimate Costs.
Determine Budget.
• The 4th project management process is called control cost and by its name it is clear that it
is included within monitoring/controlling process group.
 Process Grps
Initiating Planning Executing Controlling Closing
P.G. P.G. P.G. P.G. P.G.
Knowledge Area
4. Project 4.1 Develop 4.2 Develop Project 4.3 Direct & 4.4 Monitor & 4.6
Integration Project Management Plan Manage Control Project Close
Management Charter Project Work Project
Execution 4.5 Perform or
Integrated Change Phase
Control
5. Project Scope 5.1 Collect 5.4 Verify Scope
Management Requirements 5.5 Control Scope
5.2 Define Scope
5.3 Create WBS
6. Project Time 6.1 Define Activities 6.6 Control
Management 6.2 Sequence Activities Schedule
6.3 Estimate Activity
Resources
6.4 Estimate Activity
Duration
6.5 Develop Schedule
7. Project Cost 7.1 Plan cost Manag 7.4 Control Costs
Management 7.2 Estimate Costs
7.3 Determine Budgets
3
 Plan cost management
• Plan cost Management is the process that establishes the policies, procedures
and documentation for Planning, managing, expending and controlling the
project costs.
• The cost management planning effort occurs early in project planning and
sets the framework for each of the cost management processes so that the
performance of the processes will be efficient and coordinated.
• How the project cost will be managed throughout the project ?
 Plan cost management
• Cost Management plan is the part of Project Management Plan.
• IT describes how the project cost will be Planned, structured and controlled.
• The cost management processes and their associated tools and techniques
are documented in cost management plan.
ITTO’s (Inputs/Tools & Techniques/Outputs)
 Inputs
• Project Management Plan: project management plan contains information
used to develop the cost management plan, which contains but not limited
to:
• Scope baseline: The Scope baseline includes project scope statement and WBS details
for cost estimation and management.
• Schedule baseline: The schedule baseline defines when the project cost will be
incurred.
• Other information: other cost related scheduling, risk and communication decisions
from the project management plan.
 Inputs (continued)
• Project Charter: The project charter provides the summary budget from which the
detailed project costs are developed. The project charter also defines the project
approval requirements that will influence the management of project costs.
• Enterprise Environment factors: Organizational culture and structure can all
influence cost management. Currency exchange rates for project costs sourced from
more the one country.
• Organizational Process Assets: Financial control procedures, historical
information and lessons learned knowledge bases, Financial databases.
 Tools and Techniques
• Expert Judgment: Expert judgment, guided by historical information, provides
valuable insight about the environment and information from prior similar projects.
• Analytical Techniques: ways to finance project resources such as making,
purchasing, renting or leasing. These decisions, like other financial decisions
affecting the project, may affect project schedule and /or risks.
• Meetings: Project teams may hold planning meetings to develop the cost
management plan. Attendees may include Project Managers, project sponsor,
selected project team members, concerned stakeholders anyone with responsibility
for project costs and other as needed.
 Outputs

• Cost Management Plan: The cost management process and their associated tools
and techniques are documented in the cost management plan.
• Unit of measures: Each unit used in measurements (staff hours/days/weeks for time
measurement, meters. Liters, tons, KM) is defined for each of the resources.
• Level of precision: Degree to which activity cost estimates will be rounded up or down
(e.g. US$100.49 to US$100 or US$995.59 to US$1000) based on scope of activities and
magnitude of project.
• Level of Accuracy: The acceptable range (e.g. plus/minus 10%) used in determining
realistic activity cost estimates is specified.
 Outputs
• Organizational procedures links. The work breakdown structure (WBS)
(Section 5.4) provides the framework for the cost management plan, allowing
for consistency with the estimates, budgets, and control of costs. The WBS
component used for the project cost accounting is called the control account.
Each control account is assigned a unique code or account number(s) that
links directly to the performing organization’s accounting system.
 Outputs (continued)
• Control thresholds: Variance thresholds for monitoring cost performance may be
specified to indicate an agreed-upon amount of variation to be allowed before some
action needs to be taken. Thresholds are typically expressed as percentage deviations
from the baseline.
• Rules of performance measurement: Earned Value management (EVM) rules of
performance measurement are set.
• Defines the points in WBS at which measurement of control accounts will be performed.
• Establish the EVM techniques (% complete).
• Reporting formats: The formats and frequency for various cost reports are
defined.
Week 2 Ends