How to make a cost management plan? 4 tips

One of the first steps in developing a cost management plan is to develop the project scope and execution strategy. This provides the basis for the integrated cost management process, which also covers the subject of schedule planning, cost estimating and budgeting, resource planning, value analysis and engineering, risk management, and procurement planning. This first tip helps you develop the scope:

1. Develop a Work Breakdown Structure

During project scope development, engineers translate the scope into deliverables that together allow the asset to be created. These deliverables may include e.g. sketches, diagrams, drawings, equipment lists and specifications. Whilst they physically describe the asset, they are not suited for resource planning and project control. Deliverables need to be translated into another form: a work breakdown structure (WBS). The WBS breaks down the asset’s physical scope into manageable components for which work can be planned and controlled. 

2. Setup a cost estimate classification system

Given the goals of reducing uncertainty in the estimating process and improving communication of estimate results, it is desirable to establish standard estimate classifications for the enterprise. The classification system will define the specific input information needed to produce a desired estimating outcome quality at each phase of the asset or project life cycle. Classification schemes help define the requirements for scope definition and they will indicate estimating methodologies appropriate to that scope definition.

3. Develop and maintain tools and techniques for resource planning

Resource planning is best facilitated by having a database of historical resource data. This data should include past experiences with resource usage, availability, limitations, and similar information. The collection of historical resource planning data is generally a part of the project performance assessment process because resource plans and actual usage are in large part inherent to cost and schedule control records. Development and maintenance of resource planning tools (e.g., checklists, standard procedures and chart of accounts) is also a step in this process. A standard chart of accounts, along with the WBS, facilitates resource planning by establishing ways to consistently categorize resource information.

4. Plan how you will measure progress

Initial planning for progress measurement starts with planning the project scope and execution strategy. A suitable WBS and set of control accounts have to be developed after that. An important requirement for this is that the resources, activities, and deliverables for each work package and control account should be measurable. Because progress needs to be assessed to judge the performance of the project, assessment and measurement planning should go hand-in-hand. Planning these processes makes sure that measurements by different systems during execution are consistent with the control and cost accounts, or that processes are in place to translate them.

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Additional interesting reading information can be found at the AACE website's Total Cost Framework

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