Cost Management Plan For Mobile Tech Accounting Essay

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Cost estimation is vital to the project success. A Cost Management Plan will outline the criteria's required to manage the budget throughout the projects lifecycle. It will cover the input and output of how the project cost is calculated, reported and controlled.

The Project Manager will be responsible for tracking and monitoring expenditures throughout the project lifecycle. In the beginning of each month, a project status meeting will be held where the Project Manager present cost performance report for preceding month to senior management. The amount of physical work actually completed to date will be the method use to measure project performance (EV). Project Manager is conscientious of the project budget at all times. If the project deviates from baseline, the Project Manager is to notify Project Sponsors with options of getting the project back on budget. The Project Manager and Sponsor are authorized to make changes to bring the project back within budget.

Cost Management Approach

Managing cost for this project will be created at a

This section you explain your approach to cost management for your project.

We chose to create Cost Accounts at the fourth level of the WBS as an example since many project management offices don't have a Project Management Information System. If you are using a Project Management Information System then you can, and should, manage costs down to the work package level. For those who don't have a Project Management Information System you'll want to determine which level of the WBS you can most effectively manage the project's costs from. The further down in the WBS you go, the more detailed your cost management is. However, you should balance the granularity at which you want to manage costs against the amount of effort it takes to manage at that level. The more granular your cost management, the more work is necessary to manage it.

Costs for this project will be managed at the fourth level of the Work Breakdown Structure (WBS). Control Accounts (CA) will be created at this level to track costs. Earned Value calculations for the CA's will measure and manage the financial performance of the project. Although activity cost estimates are detailed in the work packages, the level of accuracy for cost management is at the fourth level of the WBS. Credit for work will be assigned at the work package level. Work started on work packages will grant that work package with 50% credit; whereas, the remaining 50% is credited upon completion of all work defined in that work package. Costs may be rounded to the nearest dollar and work hours rounded to the nearest whole hour.

Cost variances of +/- 0.1 in the cost and schedule performance indexes will change the status of the cost to cautionary; as such, those values will be changed to yellow in the project status reports. Cost variances of +/- 0.2 in the cost and schedule performance indexes will change the status of the cost to an alert stage; as such, those values will be changed to red in the project status reports. This will require corrective action from the Project Manager in order to bring the cost and/or schedule performance indexes below the alert level. Corrective actions will require a project change request and be must approved by the Project Sponsor before it can become within the scope of the project.

Measuring Project Costs

This section defines how the project's costs will be measured. The PMBOK focuses on Earned Value Management for measuring and controlling a project's costs. Earned Value Management is a broad and powerful tool; as such, we recommend that all project managers take some formal courses in Earned Value Management.

In this section you should detail how you will measure the project costs. What Earned Value measurements will be captured and reported upon. Will you use any tools, such as project management software, to assist in capturing Earned Value metrics? How will you forecast future project costs? Will you review cost performance over time, across work packages or schedule activities?

Our example in this section measures four Earned Value measurements; Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI) and Cost Performance Index (CPI). For most typical projects these four measurements can provide enough insight for effective management without overburdening the Project Manager with Earned Value calculations and measurements.

Schedule Variance (SV) is a measurement of the schedule performance for a project. It's calculated by taking the Earned Value (EV) and subtracting the Planned Value (PV). Since EV is the actual value earned in the project and the PV is the value our project plan says we should have earned at this point, when we subtract what we planned from the actual we have a good measurement which tells us if we are ahead or behind the baseline schedule according to our project plan. If SV is zero, then the project is perfectly on schedule. If SV is greater than zero, the project is earning more value than planned thus it's ahead of schedule. If SV is less than zero, the project is earning less value than planned thus it's behind schedule.

Cost Variance (CV) is a measurement of the budget performance for a project. CV is calculated by subtracting Actual Costs (AC) from Earned Value (EV). As we already know, EV is the actual value earned in the project. AC is the actual costs incurred to date, thus when we subtract what our actual costs from the EV we have a good measurement which tells us if we are above or below budget. If CV is zero, then the project is perfectly on budget. If CV is greater than zero, the project is earning more value than planned thus it's under budget. If CV is less than zero, the project is earning less value than planned thus it's over budget.

Schedule Performance Index (SPI) measures the progress achieved against that which was planned. SPI is calculated as EV/PV. If EV is equal to PV the value of the SPI is 1. If EV is less than the PV then the value is less than 1, which means the project is behind schedule. If EV is greater than the PV the value of the SPI is greater than one, which means the project is ahead of schedule. A well performing project should have its SPI as close to 1 as possible, or maybe even a little under 1.

Cost Performance Index (CPI) measures the value of the work completed compared to the actual cost of the work completed. CPI is calculated as EV/AC. If CPI is equal to 1 the project is perfectly on budget. If the CPI is greater than 1 the project is under budget, if it's less than 1 the project is over budget.

Earn Value Management will be the technique used to measure the performance of the project.

Performance of the project will be measured using Earned Value Management. The following four Earned Value metrics will be used to measure to projects cost performance:

Schedule Variance (SV)

Cost Variance (CV)

Schedule Performance Index (SPI)

Cost Performance Index (CPI)

If the Schedule Performance Index or Cost Performance Index has a variance of between 0.1 and 0.2 the Project Manager must report the reason for the exception. If the SPI or CPI has a variance of greater than 0.2 the Project Manager must report the reason for the exception and provide management a detailed corrective plan to bring the projects performance back to acceptable levels.

Performance Measure

Yellow

Red

Schedule Performance Index (SPI)

Between 0.9 and 0.8 or Between 1.1 and 1.2

Less Than 0.8 or Greater than 1.2

Cost Performance Index (CPI)

Between 0.9 and 0.8 or Between 1.1 and 1.2

Less Than 0.8 or Greater than 1.2

Reporting Format

Reporting for cost management will be included in the monthly project status report. The Monthly Project Status Report will include a section labeled, "Cost Management". This section will contain the Earned Value Metrics identified in the previous section. All cost variances outside of the thresholds identified in this Cost Management Plan will be reported on including any corrective actions which are planned. Change Requests which are triggered based upon project cost overruns will be identified and tracked in this report.

Cost Variance Response Process

Once the project has been baseline, it is the Project Manger responsibility to ensure that the actual start and end date is entered in the WBS for each activity, in addition to actual and fixed resources. The data will be use to determine if cost variances exist within the project. If cost variance is discovered the Project Manager will present the Project Sponsor with a detailed Cost Variance Corrective Action Plan to bring the project back within budget. Approved Cost Variance Corrective Action Plans will be updated and added to the project.

Any cost variance of 5 percent or more on either side of the project budget will require a Cost Variance Corrective Action Plan to identify the root cause.

Any cost variance of 20 percent or more on either side of the project for a single activity will require a Cost Variance Corrective Action Plan to identify the root cause.

Any cost variance small or large will be document in the Cost Variance Corrective Action Plan. A separate corrective action report should be used for more detailed corrective action.

The control thresholds for minor project variance will be absorbed into project budgets

Cost Change Control Process

The cost change control will require a "Change Request Form" with supporting documents. Project Manager and Sponsor must approve of changes for the project budget and cost.

Project Budget

The budget for this project is detailed below. Costs for this project are presented in various categories...

Fixed Costs: $xxx,xxx.xx

Material Costs $xxx,xxx.xx

Contractor Costs $xxx,xxx.xx

Total Project Cost $xxx,xxx.xx

Management Reserve $x,xxx.xx

Sponsor Acceptance

Approved by the Project Sponsor:

Date:

<Project Sponsor>

<Project Sponsor Title>

This free Project Cost Management Plan Template is brought to you by www.ProjectManagementDocs.com

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