A well-defined cost management plan is essential for effective project cost control. In this article, we will explore the six key items that should be included in a comprehensive cost management plan. From accurate cost estimation to meticulous budgeting and proactive cost tracking, these items will help you manage project costs efficiently and mitigate financial risks.
What is the Plan Cost Management Process?
Defining policies, procedures, proper documentation, and expansion requirements is all critical to creating a strong base for your Cost Management Process. Every project will need multiple project resources and many different materials in order to be successful. Cost Management aims to plan, manage, and control every expense in a certain project. Online PMP training is a great space to expand your knowledge and understanding in this area, too!
Example of a cost management plan for a construction project
In a home improvement project, many designers, builders, and manufacturers will be involved. A few materials will be needed, such as wood, tile, and appliances. The project manager will establish what is needed and draw up a Cost Management Plan document to share with their team and shareholders.
The Major Output of Plan Cost Management Process
Deciding on the cost of each activity will help you as the project management establish a budget that can be met. Management will have the flexibility to control the cost of the project and complete the project. The deliverable of the project plan cost management process is called the Cost Management Plan.
The Cost Management Plan will provide direction on how the project budget will be managed during the process. For example, you will be able to view how much money you will need to allocate to certain parts of the project.
What Questions Are Answered in This Plan?
The Cost Management process will allow the project manager to estimate the budget and decide where to allocate every dollar. Once the budget is decided on, the management of the costs will be outlined in the management plan.
This plan answers two main questions
- How do I plan the estimated cost for each project? The plan will allow you to view estimated costs for every single activity. Each outcome will help you see how to build the overall project budget.
- How do I manage the cost baseline for this budget? Once the budget for a project is decided on, the cost baseline is established. The cost baseline determines the initial cost of the project. If there are no change requests required in the project, the estimated budget will not be a problem. The Cost Management okay will help guide you on what to spend and where.
Management plans, cost management plans, and project management plans can help you achieve the project goals and be successful.
What Should Be Included?
6 items should always be included in the Cost Management Plan document.
1. Units of measure:
The estimated costs will be based on the amount of money needed for each and every material. These units have the possibility to change depending on the location and scope of the project. For example, if a project is located in the US or UK, inches will be used for length. However, in European countries, meters are used. Units of measure are an important aspect to determine cost.
2. Levels of precision:
Precision is key. As a project manager, it is your responsibility to double-check all calculations. For example, is the project using dollar amounts or decimals? While these details won’t be as crucial on a small scale, large-scale projects will rely heavily on the accuracy of this information.
3. Control thresholds:
Have you decided on your control thresholds? What will be the budget variance allowed in order to complete a project within scope? If you are managing a multi-million dollar project, defining the threshold will allow you to understand when corrective action is needed.
4. Rules of performance measurement:
Earned value management and amount of project completion must all be included in the project plan. Earned value is a very frequently used technique to measure the cost performance of a process. This term can also be referred to as EVM. Percent completion must be calculated in the cost management plan, too. For example, how do you identify an activity that is in progress? Usually, this is done by considering the status of not started, 50% complete, or 100% complete. All of these metrics must be included in the project plan.
5. Reporting formats:
All reporting formats must also be included in the project plan. How often you will be reporting on cost performance, format for reporting, and more will all be outlined here. For example, you might present a project status update every month. This must be identified.
6. Additional details:
Funding information, cost recording, and daily procedures must also be included in the project management plan. If you need an additional budget due to a change request, how you will get additional materials must be outlined in the plan. If there are specific tools or procedures to keep track of costs and expenses, this should also be documented.
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Conclusion
A well-crafted cost management plan is crucial for effective project cost control. By including these six key items in your plan, you can enhance your ability to estimate costs accurately, develop a realistic budget, track costs effectively, manage cost-related risks, handle changes, and maintain comprehensive documentation. Remember to regularly review and update your cost management plan throughout the project lifecycle to ensure its continued relevance and effectiveness. With a robust cost management plan in place, you can optimize cost control efforts and increase the likelihood of project success.
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