Planning: Cost
Planning cost management involves estimating the approximate cost of doing the individual project activities and then pulling those costs together to establish a cost baseline. These activities in turn allow the "control costs" activity to be performed.
7.1 Plan Cost Management
Process Definition
Planning cost management results in creating a plan for developing, controlling and closing the project budget. It is important to note that the plan is about how the budget will be managed, not the actual budget itself. It should clearly identify the tools that should be used, such as Microsoft Excel or an enterprise management system, recommended templates, the configuration management and control processes that should be followed, reporting requirements and closure process.
Process Assessment
A cost management plan has never been useful for me. My organizations usually have existing processes embedded into the culture and followed by teams. Costing is done in the company ERP system, and progress reporting is done monthly using Earned Value Management. I've never seen a need for this process.
Figure 15. Plan Cost Management: Inputs, Tools and Techniques, and Outputs. Reprinted from "A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition" by Project Management Institute, 2013, p. 195. Copyright 2013 by Project Management Institute, Inc. Reprinted without permission.
- Fence Construction Project Charter: Example of a project charter, developed for a project to build a backyard privacy fence. It is an input to the "Develop Cost Management Plan" process, providing a summary budget as a starting point for the cost development processes.
- Expert Judgment: This short essay discusses tools and techniques for developing a cost management plan.
- Cost Management Plan: Example of a time management plan, the output for this process, for a border security project. It identifies the tools that will be used for the budget processes, the level of detail expected in calculations and reporting, control thresholds, and reporting formats.
7.2 Estimate Costs
Process Definition
Cost estimating is required to approximate the finances required to complete a project. Trade-off studies may be required to identify the most cost-effective approach. The primary outputs of this process are activity cost estimates and basis of estimates.Process Assessment
This process can be very time consuming, but it is critical to get this right if the performing organization is at all cost sensitive. Getting cost estimates for each WBS element and/or schedule activity must be done if an accurate project cost is to be developed and tracked.
Figure 16. Estimate Costs: Inputs, Tools and Techniques, and Outputs. Reprinted from "A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition" by Project Management Institute, 2013, p. 200. Copyright 2013 by Project Management Institute, Inc. Reprinted without permission.
- Tolstoy Project - Parametric Estimating: This PMGT 501 homework assignment illustrates the tools and techniques of parametric estimating for project cost estimating.
- Expert Judgment: This cost estimating essay covers a range of the tools and techniques used in cost estimating.
- Fence Activity Cost Estimates: Activity cost estimates for a Backyard Privacy Fence project. This document includes several basis of estimates, one of the outputs of this process.
7.3 Determine Budget
Process Definition
After activity cost estimates and basis of estimates have been determined, the project manager must aggregate those costs into a total project cost baseline. This produces the total project funding requirements and a time-phased cost performance baseline.Process Assessment
Developing time phased budgets are one of the most difficult exercises in project management. And if you are not doing earned value management I see little value in developing them. If you have a short duration project, a lump sum budget is usually sufficient. If you have a long term project you might provide initial project cost estimates, followed by annual budget requests. But a detailed, resourced schedule-based time-phased budget is expensive to develop, and expensive to maintain over time as resource and duration requirements change. I try to avoid these.
Figure 17. Determine Budget: Inputs, Tools and Techniques, and Outputs. Reprinted from "A Guide to the Project Management Body of Knowledge (PMBOK Guide), 5th Edition" by Project Management Institute, 2013, p. 208. Copyright 2013 by Project Management Institute, Inc. Reprinted without permission.
- Expert Judgment: This 612 technical proposal project discusses several of the tools and techniques for developing a cost baseline.
- Fence Cost Baseline: Project funding requirements, an output for this process, for a fence installation project.
- SpacePort Project Funding Requirements: This document summarizes both the funding requirements and a time-phased cost performance baseline for a spaceport development project, both outputs of this process.