Home > Sample chapters

PMP Training Kit: Cost Management

Plan Cost Management

The Plan Cost Management process is a planning process with a single output—the cost management plan. Like all other planning documents, the cost management plan will guide your efforts in defining and controlling the project budget. It will form a subsidiary plan to the overall project management plan.

The Plan Cost Management process covers the following domain tasks:

  • 2.3 Develop a budget plan based on the project scope using estimating techniques, in order to manage project cost.

Inputs

The Plan Cost Management process uses some or all of the following inputs as part of the development of the cost management plan for the project.

Project management plan

The distinct elements of the project management plan that will be useful in developing your own cost management plan are the scope and schedule information contained in the scope baseline and schedule baseline, respectively. After it is created, the cost management plan will become part of the project management plan. The project management plan is an output from the Develop Project Management Plan process.

Project charter

The project charter contains the approved initial budget for the project at the time of project initiation. It also contains known constraints, assumptions, and risks that may affect project costs and their management. The project charter is an output from the Develop Project Charter process.

Enterprise environmental factors

Particular enterprise environmental factors that may assist with development of your cost management plan include the particular organizational culture and structure, any external market conditions that may affect project costs, and any published commercially available cost information that you may use to develop and check your cost estimates.

Organizational process assets

Organizational process assets that may play an important part in the development of your cost management plan include any historical information, and any established financial control procedures, policies, and templates for defining and controlling project costs and budget.

Tools and techniques

The following tools and techniques are available to be used to develop the inputs into this process in order to produce the cost management plan.

Expert judgment

Expert judgment is used as a tool and technique in the Plan Cost Management process as again we rely on the experience, opinion, and expertise of individuals to assist the development of a cost management plan. The experts that you consult may be members of your project team, other employees in your organization, or people from outside your organization with particular experience in putting together an appropriate cost management plan.

Analytical techniques

The use of analytical techniques in the development of your cost management plan is an important tool because you, or your financial department, will have to analyze options and make decisions about how the project will be funded. You may be able to fund the project with cash reserves, bank loans, funding with equity from shareholders, or funding with debt from other sources. Each of these options has its own benefits and drawbacks. In making the decision, you’re able to use a number of techniques, such as payback period, return on investment, internal rate of return, discounted cash flow, and net present value. Each of these terms was discussed in more detail in the Develop Project Charter process as part of the project selection process.

Meetings

Meetings are a great way to bring together members of the project team who have expertise and skill in development of the cost management plan because they are the people completing the work. You may also choose to invite selected stakeholders from outside the project team who have specialist knowledge and skills in this particular area. An example of this would be inviting members of your organization’s financial or accounts department to contribute to the development of the cost management plan.

Outputs

After the appropriate tools and techniques have been applied to the selected inputs, the Plan Cost Management process has the following output.

Cost management plan

The Plan Cost Management process has only a single output—the cost management plan. The cost management plan is a subsidiary plan of the project management plan and is used as a guide for the other cost management processes. The purpose of the cost management plan is to provide guidance to the project manager and the project team on how the organization expects costs to be estimated, budgets to be determined, cost performance to be assessed, and any potential changes assessed, documented, and reported upon. It will also outline the process of reporting progress in relation to forecast cost versus actual cost on the project and will prescribe acceptable tools, techniques, processes, and any other relevant information relating to how costs will be managed on the project.

The cost management plan is then a key input into the Estimate Costs and Determine Budget processes, both of which are planning processes.