One should know about cost and it relevant terms before going towards Cost Management Plan. The first term is Cost. Cost is the measurement of resources that must be expended in order to obtain an object or complete an activity. And project Cost Management is a series of activities for planning, estimating, allocating, and controlling costs within the project. Project Cost Management consists of following processes.
1. Plan Costs
2. Estimate Costs
3. Determine Budget
4. Control Costs
Project Cost Management Plan is an output of Plan Cost process. It consists of policies, procedures and documents of how next processes will be performed. It provides a complete guideline for remaining three processes of Project Cost Management. For Example: Project Cost Management Plan will provide answers to following questions during Estimate Cost Process.
1. What units will be used during estimation?
2. What will be the level of precision & accuracy of estimated cost?
3. What methods should we use for best results?
4. Which resource will perform this process?
5. What will be the basis of estimates?
Similarly during the third process i.e. Determine Budget: A process of aggregating the estimated costs of individual activities or work packages to establish an authorized Cost Baseline. Budget of project will explains where money will go instead of wondering where it went afterwards. Cost Management Plan will answers to following questions during determining budget.
1. What we need to determine project budget?
2. How to determine a project budget?
3. What we get from determining a project budget?
4. Which organizational resource/s will determine budget?
5. What constraints should consider during determining budget?
6. What procedures & templates will be used for determining budget?
In the last process of Project Cost Management Plan i.e., Control Cost. Control cost is the process of monitoring the status of the project to update the project budget and helps in managing Cost Baseline. Project Cost Management Plan will answer to following questions during Control Cost process.
1. How cost will be controlled?
2. What parameters will be used for controlling cost?
3. At what intervals cost will be monitored?
4. How cost will be reported to senior management?
5. What methods will be used for cost evaluation?
6. What will be the reference point of comparison?
7. What actions will be taken in any case?
Main Elements of Cost Management Plan
In general, following are main elements of Project Cost Management Plan;
1. Units of measure: This part of management plan will cover all the units used for measurement of resource quantities. These units be like length of wall will be measured in feet, door thickness will be in inches, steel weight will be in kilograms, Height will be expressed in meters, paint required will be quantified in terms of liters, volume of concrete will be in cubic meters, Tiles will be measured in meters, and etc….
2. Level of Precision: This will define how deeply activity cost estimates will be rounded up or down. And this depth will be defined based on activities scope and project magnitude. For Example: If amount of activity is 1025$ then it will be rounded down to 1000$. And if activity cost is 975$ then it will be rounded up to 1000$.
3. Level of Accuracy: Accuracy will define the acceptable range in terms of percentage. If a cost occurs against specific activity within defined range then it will not be responded. If cost goes above that range then activity will be responded. For Example: An activity cost is 100$ and accuracy level is +/- 5%. If cost during execution occurs 104$ then it will be considered.
4. Organizational Procedural Links: Organizational procedural links will provide the framework for cost management plan. This will define which resource will be responsible for which specific part of work breakdown structure(WBS).
5. Control Threshold: This is variance thresholds for monitoring cost performance against baseline plan. Actually this defines the acceptable variation before some action needs to be taken.
6. Reporting Formats: This part of cost management defines the formats of project reporting and frequency of reporting. Either reports will be generated after every week, month year or any other specified frequency.
7. Process Description: This part of cost management plan describes the various processes of project cost management. A complete detail of each process will be covered here.