Project Management

Cost Management Documents (And Which Ones You Really Need)

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Categories: cost management

Project cost management has a huge documentation overhead. Or does it? Below I breakdown the 5 cost management documents that are common across project management processes and tell you which ones you really need to.

1. Cost Management Plan

What is it?

The cost management plan is a component of your overall project management plan. It talks about how the project costs are constructed and controlled. You document your cost management processes, tools and techniques in the cost management plan as well.

Do you really need it?

It depends. On huge projects I can see the value. On projects that are using a new financing model or a different procurement approach to the norm – there’s a value there too. There’s a potential use if you are the first project manager in your organisation and you want to set things out clearly from the beginning. But in companies with established cost management processes then no, I don’t think you do.

The reason you don’t need it in those circumstances is that the information contained within it is implied in the way you do business. It’s not that there isn’t a cost management plan for your project – it’s simply that it isn’t written down in a way that a PMP following A Guide To The Project Management Body of Knowledge (PMBOK Guide) – Fifth Edition to the letter would recognise. It might not be written down at all, but it’s likely to be codified in the Finance processes that control how money gets approved and spent in your organisation.

A compromise position would be to put the relevant information into a small section your main project management plan and dispense with the need for a separate (albeit component) one.

2. Activity Cost Estimates

What is it?

Activity Cost Estimates are a way of documenting what each activity is going to cost. In A Project Manager’s Book of Forms (which, incidentally, I still find useful even though I have the Fourth Edition not the Fifth), Activity Cost Estimates are documented in a table with the following fields:

  • WBS ID
  • Resource
  • Direct Costs
  • Indirect Costs
  • Reserve
  • Estimate
  • Method
  • Assumptions/Constraints
  • Additional Information
  • Range
  • Confidence Level.

You are supposed to fill in each column for each activity and then the ‘Estimate’ column gives you the proposed budget for that item.

Do you really need it?

No, I don’t think so. I’ve never produced a document with all the details in including things like cost of financing and inflation allowance for each item. It seems like an overhead to write it all down like this.

What you do need is a record of how you came to each estimate. Personally I used the comments functionality in Excel to add a remark to the cell with the figure in. This is a reminder of what version of the supplier proposal it relates to, or how many days effort I’m basing the estimate on.

You do have to work out how much each task or resource is going to cost on the project, but you don’t have to create a whole table to list every one – incorporate the data into the budget spreadsheet you need to construct anyway and save yourself a job.

As with anything, you’ll have to use your professional judgement to assess whether it’s worth doing this document on your project.

3. Cost Estimating Worksheets

What is it?

This is a document mentioned in A Project Manager’s Book of Forms. It helps develop cost estimates when you’re using estimating techniques like parametric, analogous or three-point estimating because it gives you somewhere to store the calculations.

Do you really need it?

It depends on if you are using an estimating approach that requires a lot of calculations, and you want a single place to go back and look at how you arrived at those estimates.

For projects with a supplier who tells you the work is going to take 62 days, then no, you won’t need to work out your estimates in the same way.

4. Cost Baseline

What is it?

A Guide To The Project Management Body of Knowledge (PMBOK Guide) – Fifth Edition defines this as:

The approved version of the time-phased project budget, excluding any management reserves…a summation of the approved budgets for the different schedule activities.

It’s your budget, and it’s what sponsors really want to see.

Do you really need it?

Yes. You need somewhere to consolidate the costs for the project. In my world, this is a budget tracker spreadsheet. It’s a working document and it has to be, because money gets spent and estimates change as you challenge your assumptions and find out more detail.

5. Cost Forecasts

What is it?

Cost forecasts in A Guide To The Project Management Body of Knowledge (PMBOK Guide) – Fifth Edition are the estimate at completion in monetary terms for the project. You should document this and share it with stakeholders.

Do you really need it?

Yes. It’s not difficult to work out if you are on top of your project tracking and you don’t need to be using Earned Value to do so. I wouldn’t create a separate document for it though. It’s just a data point, so include it as appropriate in your project reporting.

Posted on: February 10, 2016 11:59 PM | Permalink

Comments (4)

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Very nice explanation.

Good work.

Excellent focused list Elizabeth - I'm digging around some of my old project documentation to see that I have model templates of each of these!

Thanks for sharing it.
Personally I think that, before to adopt methods and tools we should evaluate the size of the project, the time schedule etc. At the same time in a project we could use different methods (from the simplest to the most elaborated ) to estimate the component of costs depending of the importance or impact of each of them

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