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Cost Planning in Project Management

1449 words (6 pages) Essay in Project Management

08/02/20 Project Management Reference this

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ABSTRACT: This paper mainly discusses about the use of resource planning and to identify all the required resources in the project. It is very important in project management because it will help the project manager to check the project work and determining what are the resources, people, and equipment are needed to complete the project. It is also used to identify the expected quantity of the needed resources so the estimated cost can be calculated.

INTRODUCTION: Plan cost management, it is the first process of project cost management. This is the process which includes from the planning to the completion of the project. It is an integral part of Project management because all the actual, required and final costs will be discussed in this. It tells us how to estimate then make budget and control costs. In general, all knowledge areas have a process which gives us a plan which helps managing in that specific area. We need project management plan. cost management planning occurs early in project planning and it sets the framework for each of the cost management steps involved. The cost management processes and their associated tools and techniques are documented in the cost management plan. Cost is a resource sacrificed or foregone to achieve a specific objective or something given up in-exchange. Costs are usually measured in monetary units like dollars, Project cost management includes the processes required to ensure that the project is completed within an approved budget.

Methods: Project cost management has four phases

  1. Plan Cost Management—The process of defining how the project costs will be estimated, budgeted, managed, monitored, and controlled.
  2. Estimate Costs—The process of developing a rough estimate that how much amount are we going to complete the project.
  3. Determine Budget—The process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline.
  4. Control Costs—The process of monitoring the status of the project to update the project costs and manage changes to the cost baseline.

PLAN COST MANGEMENT: 1. INPUTS 2. TOOLS AND TECH

3. OUTPUTS.

In the initial phase of a project the required resources to complete the project activities need to be defined and the work breakdown structures (WBS) and historical information of previous or similar projects can be used to know what will be resources the needed. We need time, material, labour, equipment, etc. By having all these we can get approx. results.

Inputs

PROJECT CHARTER: It is issued by the sponsors and details related to sponsors expectation regard to cost. Charter would be having top level budget or top-level controlling guideline. The project charter also explains the project approval requirements that will impact the project.

PROJECT MANAGEMENT PLAN(PMP): Now by this time we have pmp which has good amount of details related to lifecycles, scope, time

PMP: Activities, scope, lifecycle and over all structure of this

Schedule management plan. This has the structure for activities, time, controlling etc. It prepares a structure that shows the cost impact on the project.

Risk management plan: It is pretty much same as the schedule management plan but this deals with the risks. Like possibilities for the risk, finding ways to know them and monitoring them. The risk management plan provides processes and controls that will impact cost estimation and management.

ENTERPRISE ENVIRONMENTAL FACTORS: It takes about the financial condition of the market like interest rate, labour rates, resource rates, exchange rates etc which are coming the outside enterprise or the inside enterprise which has impact on making the cost management plan. Resource rate info from databases and costs provides rough idea about, material and equipment.

Resource cost rate information is often available from commercial databases that track skills and human resource costs and provide standard costs for material and equipment. Published seller price lists are another source of information.

ORGANIZATIONAL PROCESS ASSETS: Templates, guidelines and some historical information from lesson learned which can help us in making our cost management plan. Financial databases and existing formal and informal cost estimates procedures and budgets.

TOOLS AND TECHNIQUES

EXPERT JUDGMENT: These experts will think about these requirements, expectations and environment of the organisation, history of the organisation and suggest what kind of procedures to follow while estimating or controlling cost.

This expertise should be considered from person / groups with good experience, knowledge Information in the industry, discipline, and application area and Earned value management.

DATA ANALYSIS/ANALYTICAL TECHNIQUES: This could be pointing towards funding related needs like they will be analysing from where they should fund the project. as making, purchasing, renting, or leasing.

They may put techniques like Net present vale

Internal rate of return

Payback period to provide guideline for estimating and controlling cost

It can include reviewing strategic funding options such as: self-funding, funding with equity, or funding with debt.

MEETINGS: One person can not make all this analysis part so it is usually done in teams called project teams basically who are group of experts who come together as team include the project manager, the project sponsor, selected project team members, selected stakeholders, anyone with responsibility for project costs, and others as needed. Teams held meetings for the best output.

RESULTS 3. OUTPUTS

It describes how the project costs will be planned, structured, and controlled. The cost management plan should tell us how we are going to estimate or budget or control cost. In order for this cost management plan should include

UNIT OF MEASURE: Like in which unit are we going to measure our cost like dollars/millions/pound for currency and meters/cubic meters/cms for materials etc.

Level of accuracy: The level of accuracy they are expecting, and cost estimates ranges are also to be estimated.

Level of precision: The expected precision range like example0.2/0.002/0.0002 etc at what level of precision they are looking while budget.

Organizational procedures links: WBS comes into action here the component used for the project cost accounting is called the control account. There is a unique code for each account that links directly.

Control thresholds: Like is there a limit for threshold (example 10%) if it is going beyond that there should be an alert which reminds us that our budgets are crossing. Thresholds are basic increase in baseline plan budget.

Rules of performance measurement: We will be measuring the performance while we are executing the project. This makes sure that every team reports the performance with similar benchmark and as per the rules. Establish the EVM techniques and Specify tracking methodologies and the EVM computation equations for calculating projected estimate at completion.

Reporting formats: The formats and frequency for the various cost control/cost variance reports

Additional details: This may be about assumptions and also about various other resources/ market data base which can be used while doing these activities. Risks related to cost additionally which are missed.

DISCUSSION

Like in order to estimate costs we need to know how schedule and risks are executed and managed on the project it is because schedule and risks are the two areas that can launch our project costs sky high if no done correctly.

We need to know labour rates, previous lessons learned from projects and project information systems. If our project is dependent on suppliers and vendors and the type of contract, we are going to have with them will also have a huge part in overall cost planning. Fluctuations in currency should also be noted

Project teams and their leaders should be aware of everything’ll these should be discussed for a better result

REFERENCE LIST:

  • PMBOK 6TH EDITION, IZEN BRIDGE CLASSES
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