Back To Basics – Project Management Guide: Project Cost Planning
In previous posts, we looked at project planning in terms of resource management aspects. In this post, we are going to briefly look at another vital aspect of project planning – i.e. project costs planning, project budgeting.
You can jump to Project Planning | Project Scope | Delivery Schedule Planning | Resource Planning | Project Cost Planning | Quality Planning | Risk Planning | Communication Planning parts of this series.
Back To Basics – Project Planning: Project Cost Planning
Cost planning exercise helps to baseline the overall project budget in terms of money so that project sponsors & project steering committee can agree on project delivery schedule as well as the payment schedule. It tries to identify cost elements to be consumed during the project lifecycles such as
- Monetary resources requirement (people, machinery, material, equipment, space, etc.)
- Provisions for risk management (people, machinery, material, equipment, space, etc.)
Quite commonly, cost planning is observed to be an iterative process wherein project planner update the cost of project based on information updates available with him/her. As you would have seen, in initial phase, the ROM estimates are within a broad range of ±50% of the proposed estimate and as project progresses, the estimate may get updated to the tune of ±20% or less.
What can we expect from Project Cost plan?
Cost estimates per activity
Since activity/task form the basis for estimation of effort, duration required; project cost is generally is summed up based on cost estimates of the activities involved. Just like effort/duration estimate of an activity/task, cost estimate of an activity provides quantifiable assessment expressed in terms of currency like Euro, USD, SD, etc.
It is expected to capture cost implication of
- People, equipment, facilities, etc. required to complete given activity
- Inflation, exchange rates applicable for context of the activity
Factors considered for estimates
This section will document how cost is determined/ what elements formed the basis of cost estimation – such as
- What all assumptions are made? <current vendor will supply at 10% discounted rate>
- What all constraints are applied? <max number of seats, min electricity requirement>
- What all parameters formed as a basis of estimate <number of lines of code, per square feet of wood, number of seats, etc.
- What is the confidence level of estimate? And Why? <80%?>
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