In simple words, a cost management plan is the outline of the project’s estimation, allocation and control of costs for the required resources to complete all project activities. The project’s cost plan configuration is one of the most essential parts of a project’s planning phase, and effectively serves as a safety net that guarantees that project cost is kept within the limits of the budget. The cost management plan in general terms analyzes how the project costs will be planned, funded and controlled.
A cost management plan usually involves several decisive procedures ensuring that the project will be executed within the approved budget and quality standards.
What does a Cost Management Plan include?
- Levels of precision: Define how close the measured values are to each other, such as the rounding up of decimal places in calculated totals, which might become the cause of significant deviations in cost estimation. Despite the size of the project and the fact that a considerable amount of resources can be used during a project, it is very important to set a level of precision from the very beginning and make sure all stakeholders are informed and respect the agreed upon levels, in order to avoid any differences in cost that may occur.
- Units of measurement: Define the dimensions, quantity, capacity, amount, etc. Since the variation in size can cause significant increases in material and production costs, definitions of units of measurement are a crucial feature that need to be defined, especially when project resources or procedures take place in different countries. Establishing a common point of reference can facilitate communication and avoid complications in understanding before they appear.
- Control thresholds: Are the regulation of the minimum and maximum cost variation standards. Depending on the size of the project and its approved budget, it is most significant for foreseeing a particular area of a budget, in case it might be needed to be pulled back on track or in the event of a project going off schedule or a resource turning out to cost more than initially estimated.
- Rules of performance measurement: Since all projects are expected to have specific objectives and as productivity is not always equal to performance, this is a method for measuring the level of completion of activities and its earned value must be arranged upfront. In terms of how the progress of each activity is to be considered, it is necessary to define these from the planning phase, as salaries and human resources usually constitute the largest portion of a project’s budget.
- Reporting formats: Establishing reporting protocols, their format and frequency through all stages of a project is of primary importance, especially when one considers that a project usually has more than two reporting periods, as well as the fact that reporting can be extremely useful in detecting deviations from the original plan.
As a project manager in today’s challenging business landscape it is quite certain that you will come across the question “What is a cost management plan?” several times in your career. On these occasions, you need to be well prepared to respond accurately and specifically to the query. Furthermore, you will need to comprehend the importance of management cost configuration in order to bring the project to a successful completion, even though predicting the coming cost of project activities may not be your strong suit
As you will be in charge of managing and reporting on the project’s cost throughout its entire lifecycle, the earlier you develop an approximation of cost and the more farsighted you can be, the better the chances are of successful project delivery. These few words of advice from Denis Waitley could come in very useful when performing cost management planning: “Expect the best, plan for the worst and prepare to be surprised.”