Creating the Project Cost Management Plan

You now have an exhaustive breakdown of project activities, and you have some pretty good duration estimates. Now the question that's forever on the mind of the executive management staff: How much is it going to cost? The purpose of the Estimate Costs process is to answer that question.

Every project has a budget, and part of completing a project successfully is completing it within the approved budget. Sometimes project managers are not responsible for the budget portion of the project. This function is assigned instead to a functional manager who is responsible for tracking and reporting all the project costs. I believe project mangers will have more and more responsibility in this area as the project management discipline evolves. Keep in mind that if you, as the project manager, don't have responsibility for the project budget, your performance evaluation for the project should not include budget or cost measurements.

Before diving into the Estimate Costs and Determine Budget process particulars, you should know that these processes are governed by a cost management plan that is created when you perform the Develop Project Management Plan process (we talked about that in Chapter 3, "Developing the Project Scope Statement"). You should know a couple of facts about this plan for the exam.

The cost management plan establishes the format and conditions you'll use to plan for project costs. It also outlines how you will estimate, budget, and control project costs. Like all the other management plans, the cost management plan is a subsidiary of the project management plan.

According to the PMBOK® Guide, some of the elements of this plan includes, but is not limited to, the following elements:

Level of accuracy This refers to the precision level you'll use to round activity estimates— for example, hundreds, thousands, and so on. Level of accuracy is based on the scope and complexity of the activities and the project itself.

Units of measure This refers to the unit of measure you'll use to estimate resources—for example, hours, days, weeks, or a lump sum amount.

Organizational procedures links In Chapter 3, we talked about the WBS and the identifiers associated with each component of the WBS. These identifiers are called the code of accounts. A control account (CA) is a point where several factors such as actual cost, schedule, and scope can be used to determine earned value performance measures. (We'll talk more about earned value in Chapter 10, "Measuring and Controlling Project Performance"). The control account is what's used in the Project Cost Management Knowledge Area to monitor and control project costs. The control account is typically associated with the work package level of the WBS, but there could be control accounts established at any level of the WBS. The control account also has a unique identifier that's linked to the organization's accounting system, sometimes known as a chart of accounts.

Exam Spotlight

Project Management Made Easy

Project Management Made Easy

What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.

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