Project Cost Management

The following table includes cost estimating, budgeting, and practical application of Cost/Schedule Control System (earned value) techniques to smaller projects.

 
Priority
Area
4
Minor investment, level of effort tasks, within current budgets, cost risk considered low.
3
Moderate investment, varied cost accounts, project budgeted separately, some cost risk.
2
Significant investment, costs from different sources, capital budget item, significant technical and cost unknowns.
1
Major investment, diverse expenditures, substantial visibility, substantial technical and cost risks.
Cost Estimating
Apply management judgment to estimate and justify costs; base cost authorization on staffing commitments; make general cost target to monitor spending.
Prepare written cost estimate; document data sources and estimating assumptions; validate estimate by analogy and using historical data.
Prepare formal cost estimate, with documented assumptions, using a consistent methodology, and historical data; require approval by experienced estimator.
Prepare cost estimates at the work package level; use modeling, sensitivity analysis and identification of cost risks; obtain independent cost assessment; produce auditable backup package.
Budgeting
Establish ball-park estimates of time-phased budget goals; track staff usage against plan to assess project spending.
Allocate budgets by groups within the project, establish project level spend plan and track and report actuals.
Budgets allocated by group or WBS element; preparation of multiple spend plans; groups track and report spending.
Rollup or allocate project budgets by WBS element; cost account managers commit to costs; collect data at the work package level; establish time phased budget baseline at the cost account level.
Cost and Schedule Control System
Prepare periodic guesstimates of percent accomplished and percent spent compared to progress and spending plans; report cost and schedule variances and performance indexes at WBS level 1.
Maintain traceable planning baselines to facilitate cost and schedule tracking; collect earned value and actual spending data to calculate variances and indexes at WBS level 1.
Establish time-phased budgets at WBS level 2; maintain traceable baselines and collect data to report variances and indexes at level 2; adapt accounting systems to provide reliable, and timely information.
Document systems and procedures for cost and schedule control; compute variances at WBS level 3; apply earned value implementation guide criteria to determine system adequacy.
Cost Analysis
Prepare cost estimates informally; justify project approval on rough assessment of cost reasonableness, affordability and benefits.
Prepare written cost estimates using available data, judgment and analogy; apply ball-park estimates to project changes and decision points; identify cost drivers.
Apply documented and systematic approaches to cost impacts of project decisions; review estimates and conduct sensitivity analysis on major assumptions.
Prepare documented costs estimates for changes; maintain auditable files of backup assumptions, data, and methodologies; use a standard WBS to build historical cost database for future estimates.
Version 1.2
© Copyright 1997, James R. Chapman

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