7. Project Cost Management

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7.1 Plan  Cost Management

The Plan Cost Management process institutes policies, procedures, and documents which plan, manage, update and control project cost.  It regulates  how project costs are managed through the project life cycle.  Knowledge areas associated with the plan cost management process are:

  • 7.2 Estimate Costs
  • 7.3 Determine budget 

The Inputs, Tools & Techniques and Outputs for plan cost management are listed in figure 15 below.

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Figure 15. 7.1 Plan Cost Management: Inputs, Tools & Techniques, and Outputs. Reprinted from "A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition" by Project Management Institute, 2013, p.195. Copyright 2013 by Project Management Institute, Inc. Reprinted without permission

Process Definition

The cost management plan is a product of analytical techniques and judgment used with information provided by the scope and schedule baselines.  The project charter establishes an initial budget. Cost breakdowns will be allocated as more information flows in.  Many costs can come from past jobs as part of the organizational process assets.  Published cost rates, exchange rates and other environmental factures my influence the development of the cost management plan. 

Process Assessment

The cost management plan  feels like a half done process, because it doesn't include the procurement process.  However the PMBOK Guide definition for this process is about establishing cost control plans, structure and establishing standards for currency, units of measure, and cost thresholds, all used to monitor the project costs.

Artifacts

Input

Enterprise Environmental Factors are intangibles such as, culture, politics, unpredictable geographical environmental effects typical weather for the area etc. They can be very impacting to the cost plans of a project for example, the traditional work day or hours may what you are used to. Some level of cultural competence is required by the project team.  In PMGT612 we studied the cultural effects on projects.  A blog I completed address the importance for project teams to have cultural competence. see 7.1.1  

Tools & Techniques

Analyzing costs and value are part of the process for planning Cost Management.  Its one thing to add numbers together off the WBS dictionary but to under stand how the numbers impact the value of the project in the near and long term are also important.  As is, tracking and reporting those values through the project.  In PMGT502 a report I accomplished on that subject is titled WBS 8.3Value Analysis Reporting (see 7.1.2); it gives an overview of some of the analytical tools and the importance of reporting. 

Another tool used during the course was Expert Judgement.  You wouldn't think of a bunch of students having expert judgement but you would be surprised.  During PMGT501's sustainable home project we were assign to work through some budgetary challenges and include those in our final document. Below is the Expert Budget Approach we came up with.

Output

The culmination of all the above is the Cost Management plan.  The  cost management plan defines:

  • Units of measure 
  • levels of precision 
  • levels of accuracy 
  • Organizational procedures and links 
  • cost controls
  • thresholds 
  • rule of performance measures 
  • reporting format
  • process descriptions 
  • and other details

Most of these were accomplished during the setup of MS Project assignments which makes it difficult to show in this format.  So not artifact will be included for this process. see 7.1.3

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7.2 Estimate Costs

In the Estimate Costs process an estimate is developed for project financial needs. This is based upon the estimated cost to compete all the project activities to include project management activities.  The Input Tools & Techniques and Outputs are illustrated in figure 16.

fig 14.png

Figure 16. Estimate Costs: Inputs, Tools & Techniques, and Outputs. Reprinted from "A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition" by Project Management Institute, 2013, p.200. Copyright 2013 by Project Management Institute, Inc. Reprinted without permission.

Process Definition

During the estimate cost process the information derived from the products listed above as Inputs.  The Human resource plan provides staffing costs.  The scope baseline which includes a work breakdown structure and WBS dictionary, which details costs for each activity, provides a wealth of information for this process. The project schedule helps to determine a baseline for the earned value, planned values and actual costs estimates as the project proceeds.  The risk register is used to determine cost for risk response; these can be threats or opportunities. Market conditions, and resource cost rates are considered with the environmental factors and organizational cost processes and policies help determine the contingency and management reserves.   

Process Assessment

The estimate cost process defines what the cost management plan manages.  In small project these may seem like part of the same process. In truth many of the outcomes of this process iteratively improve the inputs i.e. the project scope and charter, schedule and others benefit from more accurate information as it is accrued.

Artifacts

Input

The human resource plan often contains costs for the scheduled use of expertise during the project.  The included human resource plan does just that. Developed in PMGT611 for an IT project.  see 7.2.1

Tools & Techniques

Bottom up cost estimation allow for activity level costs to be combined and create the overall budget estimate it is one of the tools we used to complete the budget for PMGT501 see the artifact below. see 7.2.2

Output

One of the outputs for the Estimate Cost is the activity cost estimate.  In PMGT614 we included this in our WBS Dictionary below is an example of the products. see 7.2.3

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7.3 Determine Budget

The determine budget process groups the costs estimation activities from all the previous knowledge areas processes into a project budget or cost baseline.  The cost baseline along with the project schedule establishes the performance monitoring and control tools.  The Input, Tools & Techniques and outputs are listed in figure 17.

7. 3 fig 17.png

Figure 17. Determine Budget: Inputs, Tools & Techniques, and Outputs. Reprinted from "A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition" by Project Management Institute, 2013, p.208. Copyright 2013 by Project Management Institute, Inc. Reprinted without permission.

Process Definition

The determine budget process is a conglomerate of previous cost activities.  Using the knowledge gained from those two process and part of the scope, risk register and other components a budget is determined.

Process Assessment

This process allows the Project manager to develop a fairly accurate project baseline begin making analytical judgments on the project progress. 

Artifacts

Input

There are several ways to estimate cost The basis of estimating should follow logical conclusion.  In PMGT614 I was required to write a blog on cost estimation  see 7.3.1

Tools & Techniques

An analysis of the Reserve contingency is part of the tools use to ensure adequate funding incase of unforeseen events or delays.  The Team 1 budget we developed in PMGT611 included this analysis see 7.3.2.

Output

The output of the determine Budget process is a baseline budget from which the remainder of the project documents and process may operate.  This baseline forms the backbone of the future project variance reports.  PMGT501 we developed budget baseline which was part of our overall project plan.  see 7.3.3

 

 

 

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