7.1 Plan Cost Management: Figure 7-2 Figure 7-3

7.
1 Plan Cost Management

Plan Cost Management is the process that establishes the policies,
procedures, and documentation for planning, managing, expending, and
controlling project costs. The key benefit of this process is that it provides
guidance and direction on how the project costs will be managed
throughout the project. The inputs, tools and techniques, and outputs of
this process are depicted in Figure 7-2. Figure 7-3 depicts the data flow
diagram of the process.
The cost management processes and their associated tools and techniques
are documented in the cost management plan. The cost management plan
is a component of the project management plan.
7.1.1. Plan Cost Management: Inputs
7.1.1.1 Project Management Plan
Described in Section 4.2.3.1. The project management plan contains

information used to develop the cost management plan, which contains,
but is not limited to:
 Scope baseline. The scope baseline includes the project scope
statement and WBS detail for cost estimation and management.
 Schedule baseline. The schedule baseline defines when the
project costs will be incurred.
 Other information. Other cost-related scheduling, risk, and
communications decisions from the project management plan.
7.1.1.2 Project Charter
Described in Section 4.1.3.1. The project charter provides the summary

budget from which the detailed project costs are developed. The project
charter also defines the project approval requirements that will influence
the management of the project costs.
7.1.1.3 Enterprise Environmental Factors
Described in Section 2.1.5. The enterprise environmental factors that

influence the Plan Cost Management process include, but are not limited
to:
 Organizational culture and structure can all influence cost
management;
 Market conditions describe what products, services, and results
are available in the regional and global market;
 Currency exchange rates for project costs sourced from more
than one country;
 Published commercial information such as resource cost rate
information is often available from commercial databases that
track skills and human resource costs, and provide standard costs
for material and equipment. Published seller price lists are another
source of information; and
 Project management information system, which provides
alternative possibilities for managing cost.
7.1.1.4 Organizational Process Assets
Described in Section 2.1.4. The organizational process assets that influence

the Plan Cost Management process include, but are not limited to:
 Financial controls procedures (e.g., time reporting, required
expenditure and disbursement reviews, accounting codes, and
standard contract provisions);
 Historical information and lessons learned knowledge bases;
 Financial databases; and
 Existing formal and informal cost estimating and budgeting-
related policies, procedures, and guidelines.
7.1.2. Plan Cost Management: Tools and Techniques
7.1.2.1 Expert Judgment
Expert judgment, guided by historical information, provides valuable

insight about the environment and information from prior similar projects.
Expert judgment can also suggest whether to combine methods and how to
reconcile differences between them.
Judgment based upon expertise in an application area, Knowledge Area,
discipline, industry, etc., as appropriate for the activity being performed
should be used in developing the cost management plan.
7.1.2.2 Analytical Techniques
Developing the cost management plan may involve choosing strategic

options to fund the project such as: self-funding, funding with equity, or
funding with debt. The cost management plan may also detail ways to
finance project resources such as making, purchasing, renting, or leasing.
These decisions, like other financial decisions affecting the project, may
affect project schedule and/or risks.
Organizational policies and procedures may influence which financial
techniques are employed in these decisions. Techniques may include (but
are not limited to): payback period, return on investment, internal rate of
return, discounted cash flow, and net present value.
7.1.2.3 Meetings
Project teams may hold planning meetings to develop the cost management
plan. Attendees at these meetings may include the project manager, the
project sponsor, selected project team members, selected stakeholders,
anyone with responsibility for project costs, and others as needed.
7.1.3. Plan Cost Management: Outputs
7.1.3.1 Cost Management Plan
The cost management plan is a component of the project management plan

and describes how the project costs will be planned, structured, and
controlled. The cost management processes and their associated tools and
techniques are documented in the cost management plan.
For example, the cost management plan can establish the following:
 Units of measure. Each unit used in measurements (such as
staff hours, staff days, weeks for time measures; or meters, liters,
tons, kilometers, or cubic yards for quantity measures; or lump
sum in currency form) is defined for each of the resources.
 Level of precision. The degree to which activity cost
estimates will be rounded up or down (e.g., US$100.49 to US$100,
or US$995.59 to US$1,000), based on the scope of the activities
and magnitude of the project.
 Level of accuracy. The acceptable range (e.g., ±10%) used in
determining realistic activity cost estimates is specified, and may
include an amount for contingencies;
 Organizational procedures links. The work breakdown
structure (WBS) (Section 5.4) provides the framework for the cost
management plan, allowing for consistency with the estimates,
budgets, and control of costs. The WBS component used for the
project cost accounting is called the control account. Each control
account is assigned a unique code or account number(s) that links
directly to the performing organization's accounting system.
 Control thresholds. Variance thresholds for monitoring cost
performance may be specified to indicate an agreed-upon amount
of variation to be allowed before some action needs to be taken.
Thresholds are typically expressed as percentage deviations from
the baseline plan.
 Rules of performance measurement. Earned value
management (EVM) rules of performance measurement are set.
For example, the cost management plan may:
o Define the points in the WBS at which measurement
of control accounts will be performed;
o Establish the earned value measurement techniques
(e.g., weighted milestones, fixed-formula, percent
complete, etc.) to be employed; and
o Specify tracking methodologies and the earned
value management computation equations for calculating
projected estimate at completion (EAC) forecasts to
provide a validity check on the bottom-up EAC.
For more specific information regarding earned value management, refer
to the Practice Standard for Earned Value Management – Second
Edition.
 Reporting formats. The formats and frequency for the
various cost reports are defined.
 Process descriptions. Descriptions of each of the other cost
management processes are documented.
 Additional details. Additional details about cost
management activities include, but are not limited to:
o Description of strategic funding choices,
o Procedure to account for fluctuations in currency
exchange rates, and
o Procedure for project cost recording.

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7.

1 Plan Cost Management

7.1.1. Plan Cost Management: Inputs

7.1.1.1 Project Management Plan

Described in Section 4.2.3.1. The project management plan contains

7.1.1.2 Project Charter

Described in Section 4.1.3.1. The project charter provides the summary

7.1.1.3 Enterprise Environmental Factors

Described in Section 2.1.5. The enterprise environmental factors that

7.1.1.4 Organizational Process Assets

Described in Section 2.1.4. The organizational process assets that influence

7.1.2. Plan Cost Management: Tools and Techniques

7.1.2.1 Expert Judgment

Expert judgment, guided by historical information, provides valuable

7.1.2.2 Analytical Techniques

Developing the cost management plan may involve choosing strategic

7.1.3. Plan Cost Management: Outputs

7.1.3.1 Cost Management Plan

The cost management plan is a component of the project management plan

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