9.2 Project Cost Management Plan

As described in Chapter 4, project planning is at the heart of the project life cycle and tells everyone involved where we are going and how we are going to get there. It involves creating a set of plans to help guide our team through the implementation and closure phases of the project. The project cost management plan is one of the sub-plans of our overall project plan. It provides guidelines to project managers on how to estimate, budget, manage, monitor, and control project costs^[1].

A project cost management plan consists of similar items that we have in a schedule management plan. This plan can consist of the following^[2]:

• Process descriptions^[3]
  • What processes will be used for cost management?
  • These processes include planning, estimating costs, and establishing the overall budget.
• Unit of measurement
  • Daily working hours and shifts for human resources and equipment
  • Weekends and/or off-days for especially human resources
  • Metric (e.g., meter, liter, kilogram) or imperial (e.g., inch, gallon, pound) system measurement units
• Level of accuracy
  • Acceptable range to ensure realistic cost estimates (e.g., ±10%, ±20)
  • Evaluation of the impact of risks on the costs of each activity and overall project based on the project risk management plan
  • Methods describing how the cost contingencies will be assessed.
  • Procedure to account for fluctuations in currency exchange rates
• Level of precision
  • The degree to which cost estimates will be rounded up or down (e.g., $95.55 to $96; $95.45 to $95; $495.75 to $496 or $500)
  • Evaluated based on the scope, size, and complexity of the project.
• Cost estimation methods
  • Estimation methods (e.g., expert judgment, analogous, parametric, three-point, bottom-up), and when they will be utilized.
• Methods, tools, and software utilized to develop, manage, and monitor project cost
  • Specify the organizational procedures and policies if they should be utilized.
  • Methods and tools such as control accounts, WBS, project baseline, Earned Value Management, and critical path method
  • Reserve analysis to set aside some money for cost overruns due to risks in order to implement risk mitigation strategies.
  • Software such as Microsoft Project Professional, Excel, Visio, and Jira (for Kanban and Scrum), and online collaboration tools such as Monday, Trello, and Basecamp.
• Rules for monitoring cost performance
  • Earned Value Management (EVM)
  • Defining the points in the WBS at which measurement of control accounts will be performed
  • How strategic funding choices would be managed.
  • Control thresholds for deviations from the parameters in the cost baseline
  • Using software such as Microsoft Project
• Reporting formats
  • Reporting formats and frequency should be in alignment with other project plans.
  • When, how frequently, and to whom are we reporting?^[4]
• Approval of the cost baseline
  • Who will be responsible for preparation and control?
  • Who will approve the cost baseline?