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7: Project Cost Management
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Type of reporting (for example, format, frequency, and distribution of reports) Record retention (where they are stored and for how long) and who has access
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These are only a few of the things you might include in a cost management plan It can be formal or informal, provide lots of detail, or just be basic At the end of the day, however, the plan needs be in place to help you manage the cost of the project with an acceptable level of control based on the needs of the project The plan needs to meet the needs of the stakeholder requirements for capturing and reporting project costs When planning for cost, keep in mind that it is common to see a lot of money being charged to a project at the beginning without much to show for it Unless the PM manages the startup carefully (using entrance criteria, with a good orientation on what is needed versus what they may have done on similar projects), they can go over budget very quickly
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It is important to tie the cost of the project to its expected life cycle As you can imagine, the lowest costs will be at the ends (starting and closing), with the highest cost occurring during the execution phase, when you are fully staffed and using the most equipment and materials Also, you want to plan for some residual costs after the project is shut down for punch list or warranty corrections
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The one question that comes up for every project (especially new projects) is, How much will it cost The only thing that can make this question easier to answer (unless you have a really clear and accurate crystal ball) is to utilize a similar project that has been completed recently for an actual cost comparison This is called top-down or analogous estimating We talked about it in 6 and will discuss it further in this chapter it is one of several estimating tools and techniques for determining the estimated cost to run your project The cost-estimating process involves developing a best guess (approximation) of the resources needed to complete project activities and their associated costs The estimates should be refined during the course of the project as more information becomes known through progressive elaboration As you progress through the project life cycle, you learn more about the project, so the accuracy of your cost estimate will increase accordingly The cost estimates should be refined based on the additional information you have gained (this is an iterative process from one phase to the next)
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According to PMI, the two primary ranges of accuracy, which can be used at different times during the project life cycle, are rough order of magnitude (ROM) and definitive estimate (see Table 7-1) The decision of when to use each range depends on the degree of confidence in the data available and the timing of the estimate during the project life cycle For example, during the initiating phase (early in the project life cycle), there are many unknowns and a lot of uncertainty concerning the cost and information The project team may be new or the project may be unique; this is the time to use a rough order of magnitude (ROM) estimate
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ROM is sometimes called order of magnitude (OM) and carries a wider range of accuracy to estimate the cost of a project early in the life cycle
As you get further into the project life cycle, you should have more accurate information and your confidence level will increase to the point where you may choose to use a narrower range (definitive or budget level) of accuracy In either case, the decision is up to you and your team as to the range of accuracy you feel is appropriate for your estimate The main thing to remember when determining the type of estimate and range of accuracy is to document the assumptions made, the type of estimating you used, and the percentage of expected accuracy (can be 10 percent, 30 percent, or 50 percent) It is your call Once the team agrees, you document and communicate the information to the appropriate stakeholders to minimize any confusion as to the degree of confidence in the range chosen
There are times when a project sponsor will come to you and say, I just need a best guess as to the estimated cost before I can agree to start the project And far too often the number you provide gets poured in concrete and the sponsor wants to hold you accountable for that guess without giving you time to conduct a proper estimate This would be a great time to use a ROM estimate and document the type of estimate used and the range of accuracy you predict based on your (and the team s) confidence level
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