Part 148: Cost Management Plan

//Part 148: Cost Management Plan
Part 148: Cost Management Plan2022-08-21T03:59:24+00:00

Part 148: Cost Management Plan
(OUTPUT Project Cost Management: Plan Cost Management)

  • The Cost Management Plan is Part of Project Management Plan
  • Describes how the project costs will be planned, structured, and controlled
  • Includes the following
    • Units of Measure (labor hours, product quantities, etc.)
    • Level of Precision
      • How we will round cost estimates (e.g. to the nearest dollar, to the nearest thousand dollars, etc.)
      • How far we round is based on the size of the project
    • Level of Accuracy
      • How accurate should our cost estimates be?
    • Organizational Procedures Links
      • The organization has an accounting system
      • The Control Accounts come from the WBS link the project’s expenses to the accounting system
    • Control Thresholds
      • Amount of variation permitted before action should be taken
      • Typically expressed as a percentage
    • Rules of Performance Measurement
      • We set rules for measuring how much of the project we have completed, in dollars
      • This is called Earned Value Management (EVM)
      • Can include points in WBS where measurement will occur, technique used to measure, and earned value equations
      • For example, if the project’s budget is $1,000,000 and we completed half of the project, then we completed $500,000 worth of the project.  We will discuss this in more detail.
    • Reporting Formats
      • How do we report our costs?
    • Additional Details
      • Can include strategic funding choices, procedures for accounting for changes in currency exchange rates
    • Direct Costs vs Indirect Costs
      • A direct cost is a cost that we pay for up front, and an indirect cost is one that decreases the value of our assets.
      • For example, if we purchase a materials for $1,000,000, that is a direct cost.  If we own a piece of equipment, which depreciates at a rate of $100,000 each year, then the depreciation is an indirect cost.
    • Variable Costs vs Fixed Costs
      • A variable cost is one that changes with quantity, while a fixed cost does not.
      • For example, a large construction project will require $1000 worth of materials, but a small construction project will require $400 worth of materials.  This is a variable cost.  The building permit will cost $100 regardless of the size of the project.  The building permit is a fixed cost.