[Step-1] Plan Cost Management

The Process that establishes the policies, procedures and documentation for planning, managing, expending and controlling project costs. It provides organization direction on how project cost will be managed throughout the project.


Cost Management Plan - Sets out format and establishes the criteria for planning, structuring, estimating, budgeting and controlling project cost.

1. Level of accuracy - Accuracy levels to be accomplished (eg. $100, $1000, $100,000 etc)
2. Unit of Measure - Person Days, Person weeks,
3. Organizational Procedure Links - Framework for Cost Management - WBS may be used as the basic framework
4. How to record project progress
5. Control Thresholds - When to take action - Amount of variation to be allowed before some actions needs to be taken
6.. Rules for Performance Measurement - Rules for establishing percentage complete (i.e. guidelines for 25%, 50%, 75% and 100% completion)- Setting up Control Accounts to measure scheule and Cost progress - Setting up EVM framework - Schedule Variance, Cost Variance, Rules for calculating  - Estimatated Cost at Completion (i.e. using CPI, SPI or when to re-esimate etc.)
7. Reporting Formats
8. Additional Details: - Description of strategic funding choice -- Procedure to account fluctuations in currency exchange rates.

Tools and Techniques
1.      Expert Judgement: Guided by Historical Information - Expertize required in application area - Knowledge Area-Discipline and industry as appropriate

2.       Analytical Techniques:  

a.       How to Fund the Project: Choosing strategic options to fund the project such as self-funding, Funding with equity or funding with debt
b.       How to Fund the Resources: Internal Hire or External Hire [Ways to fund the resources such as making, purchasing, renting or leasing.
c.       Financial Techniques considered
                                                               i.      Payback Period
                                                             ii.      Return on Investment
                                                            iii.      Internal Rate of Return
                                                           iv.      Net Present Value
                                                             v.      Discounted Cashfow.

It facilitates ways to finance project resources such as making, purchasing, renting or leasing. These decisions, like other financial decisions affecting the project, may affect project schedule and/or risks
3.       Meetings- Bring stakeholders together - Develop the Cost Mgmt. Plan- Get the buy-in

1. Project Management Plan with specific focus on
Scope Baseline: The Project scope baseline includes project scope statement and WBS details for the cost estimation and management
Schedule Baseline: The schedule baseline defines when the project costs will be incurred.
Other information related to Risk, Communication decisions from the project management Plan.
2. Project Charter – Provides the summary budget from which the detailed project costs are developed. It also contains project approval requirements that will influence the management of project costs.
3. Enterprise Environmental Factors includes but not limited to
ü  Organizational culture and structure can all influence cost Management plan
ü  Market Conditions describe what products, services and results are available in the regional and global market.
ü  Currency Exchange Rates for project costs sourced more than one country
ü  Published commercial information such as resource cost rate information, standard costs of materials and equipment’s
ü  Project Management Information Systems which provides alternative possibilities for managing the project.
4. Organizational Process Assets
ü  Financial Controls Procedures (eg. Time reporting, required expenditure and disbursement reviews, accounting codes and standard contract provisions)
ü  Historical Information and Lessons Learnt Knowledge Base
ü  Financial Data base
ü  Existing Policies and Guidelines related to Cost Estimation and budgeting related information.