The project cost management plan is established using the WBS and its associated control accounts

Control thresholds Most actual project costs do not match the estimate exactly. The control threshold refers to the amount of variance the sponsor or stakeholders are willing to allow before action is required. Document the threshold amount as a percentage of deviation allowed from the cost performance baseline.

Rules of performance measurement This component of the cost management plan refers to how you will set the earned value management measurements. It's here you'll document where the control accounts exist within the WBS, the earned value management (EVM)

techniques you'll use to measure performance, and the equations you'll use for calculating estimate at completion forecasts and other measurements. We'll talk about EVM and estimate at completion forecasts in detail in Chapter 10.

Reporting formats This refers to the types of cost reports you'll produce for this project and how often they'll be created.

Process descriptions This describes the Estimate Cost, Determine Budget, and Control Costs processes and how you'll use these processes to manage project cost.

The key to determining accurate cost estimates (and as we discovered in Chapter 4, accurate time estimates) is the work breakdown structure (WBS). Next we'll look at how to determine cost estimates for the WBS components.

The Estimate Costs process develops a cost estimate for the resources (human and material) required for each schedule activity. This includes weighing alternative options and examining risks and trade-offs. Some alternatives you may consider are make-versus-buy, buy-versus-lease, and sharing resources across either projects or departments.

Let's look at an example of trade-offs. Many times software development projects take on a life of their own. The requested project completion dates are unrealistic; however, the project team commits to completing the project on time and on budget anyway. How do they do this? They do this by cutting things such as design, analysis, and documentation. In the end, the project might get completed on time and on budget, but was it really? The costs associated with the extended support period because of a lack of design and documentation and the hours needed by the software programmers to fix the reported bugs weren't included in the original cost of the project (but they should have been). Therefore, the costs actually exceed what was budgeted. You should examine trade-offs such as these when determining cost estimates.

When you are determining cost estimates, be certain to include all the costs of the project over its entire life cycle. As in the preceding example, software projects often have warranty periods that guarantee bug fixes or problem resolution within a certain time frame. This is a legitimate cost that should be included in your estimates.

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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