Project Cost Management - Plan Cost Management

The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. This plan is a part of the project management plan.

Lets looks at the Inputs, Tools and Techniques, and Outputs of this process.

1) Project Management Plan

• Contains information used to develop the cost management plan
• Scope baseline - project scope statement and WBS details for cost estimation and management 
• Schedule baseline - defines when the costs will be incurred
• Other information - other cost, risk and communication decisions

2) Project Charter

• Provides a summary budget from which the detailed costs are developed along with the approval requirements

3) Enterprise Environmental Factors

• Factors that may influence plan cost management may include:
• Organizational culture and structure
• Market conditions describe what products, services and results are available
• Currency exchange rates
• Published commercial information (resource cost rate and cost standards for material and equipment) 
• Project management information systems - alternative management for costs

4) Organizational Process Assets

• Assets that may be of an influence:
• Financial controls procedures (time reporting, accounting codes, etc.) 
• Historical information and lessons learned knowledge bases
• Financial databases
• Existing policies, procedures, and guidelines

5) Expert Judgement

• Using experts to help you decide on whether to combine methods and how to reconcile differences between them. 

6) Analytical Techniques

• Choose strategic options to estimate and fund the project
• self-funding
• funding with equity
• funding with debt
• Ways to finance the project
• Making
• Purchasing
• Renting
• Leasing
• Organizational policies and procedures 
• Payback period
• Return on investment
• Internal rate of return
• Discounted cash flow
• Net present value

7) Meetings

• Planned meetings to develop the cost management plan with team members who are responsible for project costs

8) Cost Management Plan

• Describes how the project costs will be planned, structured, and controlled
• It can establish the following:
• Units of measure - each unit is defined for each of the resources (Staff hours, staff days, meters, liters, tons etc.)
• Level of precision - the degree to which activity costs estimates are rounded up or down
• Level of accuracy - acceptable range used in determining realistic activity cost estimates is specified and may include an amount for contingencies
• Organizational procedures links - WBS provides the framework for this process and the WBS component used for project cost accounting is the control account. Each control account is assigned a unique code that is connected to the organizations accounting system
• Control thresholds - Variance thresholds for monitoring cost performance may be specified 
• Rules of performance measurement - Earned value management (EVM) rules of performance  measurement are set.
• Reporting formats - formats and frequency for the various cost reports are defined
• Process descriptions - all are documented
• Additional details - 
• Description of strategic funding choices
• Procedure to account for fluctuations in currency exchange rates
• Procedure for project cost recording

Source: PMBOK 5th ed.