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Categories: cost management
I was contacted by a student recently who was having trouble understanding some of the outputs from the cost management processes, specifically around the terminology about what goes into a cost management plan.
The trouble is, some of the training material makes things unnecessarily complex. The jargon makes you feel as if the explanation can’t possibly be that simple. I think that was the problem he was having – he couldn’t get past the fact that it was supposed to be complicated.
Some of it is complicated. But some of the cost management jargon is just that – jargon. When you get to the bottom of what the PMBOK Guide is really talking about then you see that actually it’s quite simple.
Here are the 9 areas of a cost management plan that he asked me to help define.
1. Unit of measure
This is just a fancy way to say ‘day’ or ‘hour’ or ‘dollar’.
Write down the units that you are using in your cost management plan. If you are using several, make it clear what is being used for which areas.
2. Level of precision
A precise estimate just means that when you talk about a range of figures, they are all bunched together. The less precise you are, the more your numbers spread out.
Use it like this: “Precision range for this budget item is +/-1%.”
That would be super precise.
3. Level of accuracy
Level of accuracy is talking about the rounding you use in your estimates. An accurate measure is one very close to the actual measure, once that is known.
4. Organizational procedural links
This section of the cost management plan lists the details of any processes you have to follow e.g. what account codes you need to use for budgeting. Basically, it’s information that you will get from the Finance team. Once you’ve written it in one cost management plan, it’s highly likely that every other project for that company will use the same processes so you won’t have to research and write it out again.
Top tip: Copy this section from another project manager who has already worked it out. Then take a few hours to make sure you really understand what their paragraphs mean and copy and paste it into your own plan.
5. Control thresholds
This relates to the agreed amount of variation allowed in your project. In other words, are you able to go over by 10% without having to ask your sponsor’s permission? Look at it as another way to describe tolerance.
6. Rules of performance measures
Write in the plan how you will track how you are doing against your budget and at what level e.g. every week, every month, to the penny or to the nearest £100. Say if you will use Earned Value Management or not and if you are going to use it, then how you are going to do so.
7. Reporting formats
Your cost management plan just needs a sentence that explains what format you are going to report in. There’s nothing special about this. You just write ‘We’ll use the standard project report template to report on cost’ in the cost management plan document, or whatever you are going to use.
8. Process descriptions
Write in the plan ‘We’ll follow the normal accounting processes for our company’ or whatever process you are going to follow.
I have never met a manager who expects there to be a process flow diagram in here explaining how each financial process works. Perhaps it’s relevant for consultancy bids, but I doubt that many businesses require more detail than just a few lines referring back to standard operational practices.
9. Additional details
This is just a generic section of the cost management plan for anything else that needs to go in.
If you think of anything that is useful for you to record, shove it in here.
Now, it’s perfectly possible that I’ve misunderstood some of these terms myself, and made them seem much simpler than they really are. Feel free to chime in and let me know if that is the case. Maybe I’m missing something, but it does seem like a lot of buzzwords to me.
Posted on: November 08, 2015 11:59 PM |
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