Anticlue

PMI Cost Management Processes

The cost management processes are all about the cost of the resources necessary to complete the project activities. The three processes in the Project Cost Management knowledge area are:

1. Cost Estimating – Cost Estimating is the process of developing an estimated cost for the resources needed to complete project activities. Cost Estimating normally occurs in the planning process group.
2. Cost Budgeting – Cost Budgeting is the process of summarizing the estimated costs of individual activities or work packages to establish a cost baseline. Cost Budgeting normally occurs in the planning process group.
3. Cost Control – Cost Control is how the cost variances and other changes to the project are managed and controlled. Cost Control occurs in the monitoring and controlling process group.

So how does one go about cost planning? Cost Planning activities should occur prior to engaging in estimating and budgeting cost. In order to plan a couple of agreements in how to qualify and quantify cost are necessary, those agreements are:

• A determination of the precision level for schedule activity cost estimates - Schedule activity cost estimates will comply with a rounding of the data to a predetermined precision based on the size of the project and the scope of the activity. (Remember that contingencies may be factored in here.)
• Establishment of a unit of measure for each of the resources – During estimation, it is necessary for the project management team to agree on a standard unit of measure for each resource. For example, the unit of measure for a particular task may be staff-days or staff-weeks.
• Establishment of direct tie ins to organizational procedures - A control account is normally established to control project cost accounting. Individual control accounts are given a code or an account number that is directly linked to your general ledger account system.
• Definition of control thresholds - Planning items for controlling costs should include control thresholds for costs. For example, if a threshold for a given activity is set at $5,000, the project manager must be alerted before the costs exceed this amount.
• Definition of earned value rules – The Earned Value Formulas for computing earned value which determine the estimate to complete are identified.
• Development of the formats for the various cost reports – Standardized reporting formats are established by the Cost Management Plan. Reports are provided to the stakeholders. It is good to use an organizational template here.
• Documentation of each of the three Project Cost Management processes - The three cost management processes should be documented in the Project Management Plan as they relate to the specific project.

The purpose of planning activities is to increase the efficiency and effectiveness in how an organization and project manager manage project costs.