PMP Training Kit: Cost Management

  • 7/15/2013
Contents

Plan Cost Management

MORE INFO: Plan Cost Management

You can read more about the Plan Cost Management process in the PMBOK® Guide, 5th edition, in Chapter 7, section 7.1. Table 5-1 identifies the process inputs, tools and techniques, and outputs.

Table 5-1 Plan Cost Management process

Inputs

Tools and techniques

Outputs

  • Project management plan

  • Project charter

  • Enterprise environmental factors

  • Organizational process assets

  • Expert judgment

  • Analytical techniques

  • Meetings

  • Cost management plan

EXAM TIP

Did you notice that the inputs, tools, and techniques for the Plan Cost Management process are identical to the inputs, tools, and technique for the Plan Schedule Management process? The only difference between the two processes is the single output.

The Plan Cost Management process is a planning process with a single output—the cost management plan. Like all other planning documents, the cost management plan will guide your efforts in defining and controlling the project budget. It will form a subsidiary plan to the overall project management plan.

The Plan Cost Management process covers the following domain tasks:

  • 2.3 Develop a budget plan based on the project scope using estimating techniques, in order to manage project cost.

Inputs

The Plan Cost Management process uses some or all of the following inputs as part of the development of the cost management plan for the project.

Project management plan

The distinct elements of the project management plan that will be useful in developing your own cost management plan are the scope and schedule information contained in the scope baseline and schedule baseline, respectively. After it is created, the cost management plan will become part of the project management plan. The project management plan is an output from the Develop Project Management Plan process.

Project charter

The project charter contains the approved initial budget for the project at the time of project initiation. It also contains known constraints, assumptions, and risks that may affect project costs and their management. The project charter is an output from the Develop Project Charter process.

Enterprise environmental factors

Particular enterprise environmental factors that may assist with development of your cost management plan include the particular organizational culture and structure, any external market conditions that may affect project costs, and any published commercially available cost information that you may use to develop and check your cost estimates.

Organizational process assets

Organizational process assets that may play an important part in the development of your cost management plan include any historical information, and any established financial control procedures, policies, and templates for defining and controlling project costs and budget.

EXAM TIP

It is important to note that in your day-to-day work you may use the terms “cost” and “budget” interchangeably. However, for the purposes of this examination you must understand that the two words have separate meanings. “Cost” refers to the actual costs of each activity or work package which, when aggregated, form a total project cost. “Budget,” on the other hand, refers to costs over time.

Real world

One way to keep your accounts people very happy is to be proactive with the development of your project budget. If you are able to tell them clearly when you expect to spend money, and when you expect to have money come in, they are able to better plan the organization’s cash flow requirements. It is important that you realize that as a project manager your project may impose serious cash flow problems upon the wider organization, and it is the accounts people who have to figure out how to make sure money is available when you need it. I have always found that giving the accounts people information early and often about when I plan to use money is a great way of managing this particular group of stakeholders.

Tools and techniques

The following tools and techniques are available to be used to develop the inputs into this process in order to produce the cost management plan.

Expert judgment

Expert judgment is used as a tool and technique in the Plan Cost Management process as again we rely on the experience, opinion, and expertise of individuals to assist the development of a cost management plan. The experts that you consult may be members of your project team, other employees in your organization, or people from outside your organization with particular experience in putting together an appropriate cost management plan.

Analytical techniques

The use of analytical techniques in the development of your cost management plan is an important tool because you, or your financial department, will have to analyze options and make decisions about how the project will be funded. You may be able to fund the project with cash reserves, bank loans, funding with equity from shareholders, or funding with debt from other sources. Each of these options has its own benefits and drawbacks. In making the decision, you’re able to use a number of techniques, such as payback period, return on investment, internal rate of return, discounted cash flow, and net present value. Each of these terms was discussed in more detail in the Develop Project Charter process as part of the project selection process.

Real world

I have often found that many project managers are completely oblivious to how the project is going to be funded. I believe an important skill that any project manager should have is to have an understanding of project financing methods and the implications that the different finance sources have upon project costs. One of the first places you will look for guidance about funding criteria and sources of potential funding is the project charter.

Meetings

Meetings are a great way to bring together members of the project team who have expertise and skill in development of the cost management plan because they are the people completing the work. You may also choose to invite selected stakeholders from outside the project team who have specialist knowledge and skills in this particular area. An example of this would be inviting members of your organization’s financial or accounts department to contribute to the development of the cost management plan.

Outputs

After the appropriate tools and techniques have been applied to the selected inputs, the Plan Cost Management process has the following output.

Cost management plan

The Plan Cost Management process has only a single output—the cost management plan. The cost management plan is a subsidiary plan of the project management plan and is used as a guide for the other cost management processes. The purpose of the cost management plan is to provide guidance to the project manager and the project team on how the organization expects costs to be estimated, budgets to be determined, cost performance to be assessed, and any potential changes assessed, documented, and reported upon. It will also outline the process of reporting progress in relation to forecast cost versus actual cost on the project and will prescribe acceptable tools, techniques, processes, and any other relevant information relating to how costs will be managed on the project.

The cost management plan is then a key input into the Estimate Costs and Determine Budget processes, both of which are planning processes.

Quick check

  1. What is the main purpose of the cost management plan?

  2. What is the main reason for using analytical techniques during the Plan Cost Management process?

  3. What sort of organizational process assets would be useful as inputs into the Plan Cost Management process?

Quick check answers

  1. The main purpose of the cost management plan is to provide guidance on further planning of project costs, estimating costs, developing a project budget, checking planned cost performance against actual cost performance, and managing any potential changes to the cost baseline.

  2. Analytical techniques are used as a tool to help assess the different options, and the pros and cons of each, for funding or financing the project.

  3. The types of organizational process assets that would be useful as inputs into the Plan Cost Management process include any existing organizational financial control procedures, blank templates, established processes, gathered historical cost information, and any internal financial databases.

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This chapter is from the book