Cost Plan in Project Management

The Project cost plan includes the schedule of costs to be incurred during the project and the associated estimates. These are the costs which are expected to be incurred as a result of the completion of project activities. The schedule of activities and the resource plan feeds into the Cost plan and hence it is prepared subsequent to them. As a result of the project planning activities, the project manager is aware of the details regarding the project and hence the refinement of project budget can take place.

This activity is particularly important when the project in full or part is expected to be executed under a contract.

This is not to undermine the importance of accurate cost planning for the in-house projects as accurate and realistic cost plan helps in effective monitoring and of costs during the execution of the project. The monitoring of the cost helps the project manager to execute the project within the budget. Following three activities are important to develop the cost plan

1. The expected cost identification and estimation
2. Estimation of schedule when these costs would be incurred
3. Cost per activity/task estimation

The development of the cost plan for simple projects may only involve the consideration of the overall cost vis-a-vis the project activities on the schedule of activities.

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Nevertheless, the situation is different for the complex projects, where, a detailed cost plan needs to be drawn in order to effectively monitor the overall expenditure. The NRM is also known as New Rules of Measurement.

It provides a structured basis for preparing ‘order of cost estimates’ and ‘elemental cost plans’ including all the costs and allowances forming part of the cost of the building to the client but which are not reflected in the measurable building work.

NRM covers the non-physical aspects of a project that the client may require as part of his overall budget for the project. NRM rules for order of cost estimating

• Information required
• Constituents
• Measurement rules
• Floor area
• Functional units
• Elements – floor area, Element unit quantities
• Updating historic costs
• Preliminaries
• Contractors overheads and profit

Discuss how earned value techniques could be employed on the project as part of the project control process including examples to illustrate their application to the management of the preliminaries costs.

Earned Value Analysis (EVA) was developed by the US Department of Defence to determine the performance of large military procurement contracts. Its techniques can still be applied to the smaller projects currently in use today. Indeed, as Microsoft Project allows drilling down through and across a project, specific variances and general trends can be easily found. EVA looks at three basic parameters:

• What value of work SHOULD have been accomplished to date?
• How much value has been realized to date?
• How much has actually been spent to date?

So far (as of the project's status date), the project is behind schedule to the value of $1,600 worth of work. In addition the current best estimates indicate that it will (if things continue as planned) overspend by $2,004, which is $725 more than forecast in the topmost example. Whilst these figures may not indicate large overspend or overrun, these figures are from a sample project containing ONLY seven tasks. If there were 70 tasks (or even several hundred tasks), the potential for error becomes much larger.