5th Edition PMBOK® Guide—Chapter 7: Cost Management Plan

1. Introduction

The planning process 7.1 Plan Cost Management has as its output the Cost Management Plan. (No surprise there!) As mentioned in the last post, the purpose of the Cost Management Plan is to provide a framework for all of the processes of Cost Management, whether they are in the Planning Process Group or the Monitoring & Controlling Process Group. The purpose of this post is to discuss the elements within the plan and discuss which processes these elements relate to: 7.2 Estimate Costs, 7.3 Determine Budget, or 7.4 Control Costs.

2. Elements of the Cost Management Plan

Element of Plan Description of Element Related Process
1. Organizational procedures links WBS provides framework for cost management plan. WBS component used for project cost accounting is the control account. 7.2 Estimate Costs, 7.3 Determine Budget
2. Units of measure Each measurement used with resources to obtain cost estimates. 7.2 Estimate Costs
3. Level of precision Degree to which cost estimates are to be rounded up or down. 7.2 Estimate Costs
4. Level of accuracy Acceptable range (e.g., ±10%) used in determining cost estimates 7.2 Estimate Costs
5. Control thresholds Variance thresholds for monitoring cost performance before action must be taken. 7.4 Control Costs
6. Rules of performance measurement Rules of measuring performance through EVM (earned value measurement) are set. 7.4 Control Costs
7. Reporting formats Format and frequency of cost control reports is specified. 7.4 Control Costs
8. Process descriptions Descriptions of each of the cost management processes. ALL

The WBS is the framework for the cost management plan because the costs are totaled or “rolled up” from the costs for the individual work packages in the WBS.

The units of measure, level of precision, and level of accuracy all used to create consistency in the planning and monitoring & controlling of the costs. Note that the 5th Edition PMBOK® Guide finally corrects the difference between precision and accuracy that was sometimes muddled in the 4th Edition. Precision means whether the number of decimal places to which the estimates are specified; accuracy means the degree to which the estimate at various stages of planning is allowed to vary from the actual costs.

The control thresholds and rules of performance measurement are set up so that if variance from the budget is detected, there is an objective road map set up of what actions to take depending on how much the variance is.

No matter if there is a variance or not, the project team and the concerned stakeholders will have to be notified of the cost performance of the project, and that is what the reporting formats are for.

Finally the process descriptions of ALL cost management processes are described which would facilitate process improvement if necessary.


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