Cost Management Plan

Table of contents

Introduction

The Cost Management Plan defines how costs will be estimated, budgeted, and controlled. Standard practice ensures financial resources are planned realistically, tracked accurately, and reported transparently.

For projects that use a predictive module, cost management has three prcesses:

• Estimate Cost
• Determine Budget
• Control Cost

Cost Estimation

Outlines how project costs will be forecast. Standard practice uses bottom-up estimates, expert judgment, or analogous data from past projects.

To begine cost estimating one needs inputs:

• Schedule management plan,
• Risk register,
• Contracts, and
• Resource management plan.

The schedule management plan should an summary of the activities hours. These hours combined with the salary ranges listed in the resource management plan are used to estimate resource costs.

The procurement management plan should list the contracts and associated price structure, and the risk management plan list project risk from which a reserve amount should be budgeted.

Budget Development

Describes how estimates are aggregated into a budget baseline. Standard practice is to align with funding availability and add contingency reserves for risks.

Cost Baseline

The approved budget used for performance measurement. Once established, changes require sponsor approval.

Cost Control

Explains how variances will be detected and corrected. Standard practice is to use Earned Value Management (EVM) and variance analysis (CPI, SPI).

Reporting

Cost performance is reported monthly to stakeholders. Standard practice includes S-curves, variance reports, and forecasts.

CPI, Cost Performance Index, is derived by dividing the earned value (EV) by the actual cost (AC). This value represent the project cost performance for a given time. For example, the project cost performance index in April is (9600/17,541) = 0.547.

CPI can then be used to forecast project cost at completion using formula BAC/CPI, where BAC is Budget at Completion. Based on the current CPI, the forecasted cost at completion is 19.030/0.547 = $34,771. This is very alarming.

Furthermore, an estimate of the remaining project cost can be forecasted using the formula: (BAC-EV)/CPI, (19030-9600)/0.541 = $17,230. Some immediate action is required.

Risks & Assumptions

Document financial risks and assumptions. Standard practice is to link them to the Risk Register.