Chap 7.1 Plan Cost Management

By: Anand Bobade (nmbobade@gmail.com)PMBOK 6edition @ All rights reserved .
Chapter 7 –
Project Cost Management
PMP
Trainer: Anand BobadePMBOK 6th Edition, 2019, All rights reserved.
Plan Cost
management
SIXTH EDITION

Overview
Process definition
Process - ITTO
What are Analytical Techniques?
Cost Management plan
Life cycle costing
Review
7.1 Plan Cost Management

How PM will plan and execute the Cost management activities
Cost planning is very critical Starts early in the project
Involves Estimating,
Budgeting & controlling
Report cost (Cash flow) to
concern stakeholders
Plan Cost Management

Establishes Policies, procedures & documentation for planning,
managing, expending & controlling project costs.
It provides guidance and direction on how the project
costs will be managed throughout the project.
Establishing
Planning Managing
Expending Controlling
Plan Cost Management -> Definition

Plan Cost Management-> ITTO
Expert Judgment
Data analysis
Meetings
Project Management
Plan
Project Charter
Enterprise
environmental factors
Organizational process
assets
Cost Management
plan
Inputs Tools & Techniques Outputs

PMP Project Charter EEF OPA
Plan Cost Management-> Inputs

PMP
• Scope statement and WBS detail.Scope baseline
• When the project costs will be
incurred.
Schedule
baseline
• Risks (Risk reserves)
• Communications (for reporting).
Other details
Plan Cost Management->Inputs->PMP

Project Charter
Provides the summary budget
Approval requirements that will influence the management of
the project costs.
Measurable objectives
& success criteria's
High level risks
Summary milestone
schedule
Summary budget Stakeholder list
Project approval
requirements
Plan Cost Management->Inputs->Project charter

Enterprise Env.
Factors
Market conditions, Currency exchange rates.
Published commercial information (resource cost)
Project management information system.
Organizational culture and structure.
Plan Cost Management->Inputs->EEF

Organization
Process Assets
Existing cost policies, procedures, and guidelines
(e.g., invoicing process)
Financial controls procedures.
Historical information and lessons learned (e.g.,
past cost escalation issues)
Financial databases (E.g., internal resource rates)
Plan Cost Management->Inputs->OPA

Expert Judgment Data Analysis Meetings
Plan Cost Management -> Tools & Techniques

Expert
Judgment
They provides valuable insight on costing methods.
Apply experience & information from prior similar
projects.
Examine & compare different approaches (Cost of
Quality, Cost benefit analysis etc).
Provide input for financial analytical techniques
(ROI, IRR etc)
Plan Cost Management ->T&T->Expert Judgment

Data analysis
Analyse ways to finance resources:
Make Buy Rent Lease
Financial Techniques used for analysis:
Payback period
Return on
Investment(ROI)
Internal Rate of
Return (IRR)
Net Present Value
(NPV)
Planning may involve choosing strategic options to fund
Self-funding Funding with equity Funding with debt
Plan Cost Management ->T&T->Analytical Techniques
PM may not be involved in financial decisions.

Meetings
Meetings will be used to discuss how to estimate & manage cost.
Project
Manager
Sponsor
Key team
members
Financial
experts
Key
Stakeholders
Plan Cost Management ->T&T->Meetings
Any one with cost planning, estimation, budgeting related responsibilities
should attend then meetings.
Discuss & analyse
ways to finance
resources
Discuss & agree
on funding
options

Cost Management
Plan
Plan Cost Management-> Output->Cost Managment Plan

Cost Management
Plan
Guidelines to establish Cost baseline.
Cost change control procedures.
Details about all three processes.
Funding decisions.
Guidelines for dealing with fluctuating cost.
Roles & responsibilities for cost related activities.
Units of Measure Level of Precision Level of Accuracy
Organizational
procedure links
Control Thresholds
Rules for Perfor.
Measurement
Reporting Formats Additional Details
How the project costs will be planned, structured, and controlled.
Plan Cost Management-> Output->Cost Managment Plan

Units of Measure:
• Resources : Staff hours, days or lump sum cost
• Road construction project: Kilometer or Miles.
Level of Precision:
• Degree to which cost estimate will be
rounded. E.g. 99.85 => 100
Level of Accuracy:
•Initial-Rough order of magnitude(–25% to 75%)
•later - Definite estimate –5 to +10%.
Organizational procedure links:
•Control Account - Code linked to accounting system.
•WBS provide framework for cost management & helps
maintain consistency in estimations.
Plan Cost Management->Output->Cost Management Plan
Cost Management
Plan

Control Thresholds:
• Agreed amount of variation to be allowed.
• 1% Schedule variance to schedule baseline.
Rules for Performance Measurement:
•Define points in WBS -> Measure Control Accounts
performance.
•Established EVM techniques (Weighted milestones,
fixed formula, % complete)
•Specify tracking methodologies (Calculating EAC)
•Used in Performance based contracts.
Reporting Formats:
• Agreed reporting format to share cost reports,
Cash-flow’s etc.
Cost Management
Plan

Process Description:
• Each of the three cost management Processes
are documented.
Additional Details:
• How the project will be funded.
• Strategic funding choices.
• Procedure to manage currency fluctuation.
Cost Management
Plan

Cost Management
Plan
Life Cycle Costing:
• Broader view of Project Cost Management
• Consider effect of cost decisions on using,
maintaining & supporting the product, service
or result of the project.
• Life cycle costing together with value
engineering can improve decision making
• Used to reduce cost and execution time.

Cost planning is very critical
Starts early in the project
Involves estimating, budgeting, and controlling
costs
T&T-> Expert, Data analysis & meeting
Funding (Self-funding, Funding with equity,
Funding with debt)
Analyse ways to finance resources (Make or Buy,
Rent or Lease)
Plan Cost Management -> Review

Chap 7.1 Plan Cost Management

Chap 7.1 Plan Cost Management

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Chap 7.1 Plan Cost Management