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The project your organization or company decides to make are critical measures to ensure the company’s future. Good cost management enables you to make excellent use of your company’s time, personnel, equipment, and material resources. It can also help you make data-driven decisions about projects and the risks they entail, measure financial performance, and provide standard measurement to senior management. You may also see risk management examples & samples.
You need to make sure that the company’s resources, especially financial resources, are utilized on useful projects. You have to have an outline of where and when to use the budget you have allocated for certain projects. This will not only help you plan out strategic moves to help out the company, this can also help you keep track of the expenses in all of the resources you have available. You may also like data management plan examples.
This can also help you measure the growth of your company and therefore help you make decisions basing on the data you have on hand.
A cost management plan is the outline of a project’s estimation, allocation, and control of costs for the necessary resources needed to complete all the activities of the project. It refers to all the activities involved in the planning and controlling a project’s budget. It helps keep track of all the project cost and at the same time guarantees that the project costs are kept within its limits.
Simply put, a cost management plan is the plan the helps manage the cost and overall expenses that is used for the project. It is an essential part of making sure that the project is still on track and making sure that the company is not spending way more than it’s supposed to. You may also see quality management plan examples.
A cost management plan is the product of the plan cost process. It consists of the policies, procedures, and documents of how the processes will be performed. It also consists of of the various processes to complete the project within the approved budget. Its main purpose is to define the necessary budget to actualize the approved project. It also aims to monitor as well as control the project costs in order so that it equivalents the approved budget for the project.
An effective cost management plan ensures that the project is completed on budget and according to its planned scope. Cost management is a major basis for the project outcome because it assesses success rate of a project on the cost performance part. This simple plan starts from planning and budget allocation up to controlling costs during project execution. It also assesses a project’s cost performance upon its completion.
Although there are various of functions involved on cost management plan, it is mostly referred to in specific terms such as spend management, cost accounting, and cost transparency.
Generally, a cost management plan analyzes how to plan, fund, and control the project costs. It basically maps out all the expenses the project will acquire along with the plan on how to effectively budget it and spend it on the necessary aspects of the project. You may also like risk management plan examples.
It also layouts the system in funding the project thru the established budget as well as how to control the costs that will be used during the entire execution of the project. This is one of the most important plans that needs to be prepared even before the groundbreaking of the project. You may also check out performance management plan examples.
A cost management plan can be customized to fit your company or organization’s needs; however, they generally follow a standardized format. The sections in a cost management plan generally evolves around the costs and the budget. Here is an explanation of some of the most common sections found in a cost management plan:
Cost variance means the actual amount differs from that of the budgeted amount. You will need a section in your cost management plan that explains the actions that you should take in case of a cost variance in your project; this also includes the person to be held responsible in case of cost variance. Actions needed to be taken in case of cost variance vary depending in the size or amount involved. You may also see behaviour management plan examples.
For a cost variance amounting to less than five percent can lead to a thorough explanation of that variance, whereas a 95 percent or greater variance can lead to force a total abandonment of the project.
This section talks about the approach a manager uses for cost management. This section basically describes how a cost baseline is established and how to compare the actual costs.
You can usually track and report the costs of your project with the use of control accounts where the costs for the subtasks under the project are summed up; however, it all depends on the scope of the project. This is often used at the third level of the work breakdown structure where it is used to determine the resources necessary to complete the project by breaking it down into small components of work. You may also like communication management plan examples.
In this part of the cost management plan, the methods used for estimating project costs, level of variation and the expected precision, its accuracy and risks are defined.
The cost baseline represents the authorized spending plan basing on its time phasing where you measure cost performance to. It is basically the sum of the estimated cost of the entire project as well as the contingency reserves that help manage the identified risks. You may also check out effective classroom management plan examples.
This section helps establish how will the costs be measured and their key metrics during the whole project. Cost control not only deals with managing the budget but also planning, and preparing for potential risks. Meanwhile, the reporting process typically deals with the overall reports that will be conducted throughout the duration of the project. You might be interested in change management plan with examples.
This section of the cost management plan describes the process involved making changes to the cost baseline as well as how to approve of these proposed changes.
By summing up the cost of executing the project, a cost baseline is produced which will then be the basis for the budget. It is the detailed estimate of all the costs required to finish the project including the contingencies for possible risks or management reserves. Depending on the policy the company has set, the amount for this is usually 5 to 15 percent of the total budget.
We hope this guide has helped you understand what a cost management plan is and its basic components.