Plan cost management is a system for handling the costs of a project throughout its lifecycle. With the help of a cost management plan, standard procedures, policies, and documents can be put in place. This makes planning, managing, and controlling project costs more efficient.
In addition to a standard process, plan cost management identifies an authority for managing costs and approving changes to the budget. The plan also implies specific formats and methods of cost performance to abide while reporting to the authority.
How is Plan cost management done?
Broadly, plan cost management includes three stages.
1. Inputs
The project management plan is a framework for a project. This detailed document gives a consistent method as an input that will be used for developing further plans. The scope and schedule baseline and other details can refine the cost management plan.
The project charter states the scope, estimated budget, objectives, and stakeholders of a project. The budget will help in developing a bottom-up series of the budget.
The Enterprise Environmental Factors (EEF) is the internal and external factors that affect a project’s success. EEF such as availability of resources, information system for tracking costs, etc. influence the cost management plan.
The information, knowledge tools, and documents used by a specific organization over time forms the organizational process assets. The processes followed in the past projects are used as a reference for new upcoming projects.
2. Tools and Techniques
To develop a cost management plan, the core team must plan and meet with experts on board. The experts give their views on methods to adopt for estimation, funding implications, etc. on the basis of their experiences.
The experts also provide analytical techniques to enhance the viability of the project. Few financial analytical techniques such as return on investments (ROI), net present value, and internal rate of return should be done on a mandatory basis.
A work breakdown structure is a tool that gives an overview of the scope of work. Thus, planning and controlling becomes easier. Along with the WBS, chart of accounts and checklists will facilitate resource planning. Tools such as MSP and Primavera can track the progress of the project daily.
Units of measure and precision levels (decimal places) must be specified as it is a critical aspect of cost estimation.
Techniques such as earned value management and percentage completion method are essential for measuring cost performance.
A threshold budget in check with the schedule must be specified. Sources required for additional funds must be specified in the plan to avoid chaos in the future.
3. Output
The cost management plan is the major output at the end of multiple brainstorming sessions. It becomes a guide that ensures to fulfill the project scope within the determined budget.
The plan should lay down a detailed answer to the following two questions:
- What is the plan and approach of the project cost?
- How to manage the project w.r.t cost baseline?
Why do we need Plan Cost Management?
The plan provides direction on handling the project costs throughout its lifecycle. The use of professional tools increases the level of accuracy of the results and reduces the margin of error.
In case there is confusion and differences, the standard plan puts an end to all problems.
The project manager can efficiently monitor the project and estimate the fluctuations in cost from time to time.
The plan can further help to identify risks and perform quantitative risk analysis.
FAQs
Plan cost management is a process for handling the costs of a project throughout its lifecycle.
The plan provides direction on handling the project costs throughout its lifecycle.
Earned value management is a project management technique for measuring the performance of the project.
Read More: EARNED VALUE ANALYSIS