Cost Management Plan

1.1 Purpose

The reason a cost management plan has been put in place is to ensure that projects finances are managed to the best ability of our team. Having a cost management plan in place will allow the project team to successfully complete Mr Jones’s shed within the allocated budget constraints. There are multiple cost components associated with this project as well as many metrics, cost variance considerations, and reporting which this plan will detail. For this project to be considered a success, all key project team members and stakeholders must follow the guidelines stated in this plan.

1.2 Scope

 

The cost management plan for the building Mr Jones’s shed includes many internal and external cost components.  All metrics and variance analysis must be applied to these cost components throughout the project lifecycle.  These components include:

Internal

  • Shed assembly
  • Equipment Hire
  • Labour
  • Materials

External

  • Insurance
  • Concrete installation costs
  • Council worker costs

2.0 Cost Management Roles and Responsibilities

Dylan will be responsible for managing the project. Along with Fred, Eddie, Bob, Gary, And Tony, Dylan will be ensuring that the chosen budget adheres too. Fund allocation has been set out for various sections of the project and has been overcompensated for to ensure any price rise of materials, equipment hire, or council assistance will not affect the project in a negative way. All tradesmen on this project have been designated a selection of materials to use and will not be requiring anything other than what has been detailed in the WBS and the project budget. Project management course information available at  https://www.edna.edu.au/online-courses/diploma-of-project-management/

2.1 Project Sponsor

The Project Sponsor for building Mr Jones’s shed is Fred. Fred will be responsible for approving the projects cost management plan and the budget developed by Karen and Dylan. Fred will also be responsible for potential approval of additional funding that Dylan may need to complete the project. Fred will report project budget and funding status directly to the customer to keep him involved in the project

2.2 Project Manager

The project manager for Mr Jones’s shed project is Dylan. Dylan is responsible for managing the day to day funding for the project. Also, Dylan will be creating a Work Breakdown Structure which will detail all work that will be performed by Fred’s employees. Dylan will have the authority to allocate project funding and expenditure as detailed in the cost management plan. For further funding of this project, Dylan will need to seek the approval from the project sponsor. Dylan will need to develop metrics and variance analysis tools to provide weekly status updates to the project sponsor throughout the three-week project.

2.3 Project Team

The project team is responsible for completing the assigned work in agreement with the cost management plan. The project team will also be required to forward on all metrics to allow Dylan to create a detailed and accurate variance analysis, so he can ensure that the project is staying within the allocated budget.

2.4 Contractor Support

The contractors providing cement installation and council land checks for the project will be responsible for providing initial project cost estimates, which will include all the costs required to complete the task. The contractor will also need to provide a Work Breakdown structure detailing the designated tasks and their associated costs. The contractors will be responsible for completing the work within the funding requirements.

3.0 Cost Management Approach

The approach that will be taken for this project to be managed correctly and allow a successful completion will include cost planning/estimating, cost tracking, cost reporting/metrics, and cost variance.

The cost planning/estimating process was used for two budgets. Fred requested that Dylan will need to estimate the total costs of a shed that was built using high grade materials and equipment, as well as a budget detailing a shed being built by using industry standard equipment. To do the estimations Dylan is tasked with researching commercial databases as well as contacting vendors that Fred currently uses to gather all pricing information. Dylan will be able to utilise information and lessons learned from Fred’s Shed’s companies previous shed projects to assist with the cost planning/estimating process.

Earned Value management techniques will be utilised to track project costing performance and directly compare with the budget baseline. Using this technique will help Dylan assess and measure the performance and progress of the project to ensure Mr Jones’s shed is completed within the requested $40,000 budget.

Reporting will be provided by a detailed profit and loss statement to allow Fred to see if this project is making a profit or is making a loss on Fred’s business. Due to the small size of the project, the profit and loss statement will be updated weekly allowing Fred to keep up to date on how the project is progressing.

Using variance analysis will allow Dylan to manage and identify cost variance throughout the project life cycle. Variance analysis will be used to compare the real-world progress with the planned cost performance of the project. To ensure all facets of the project are covered, a trend analysis will also be used to track how the project is trending from start to finish. Good resource available here.

3.1 Cost Planning and Estimating

Once the resources that will be needed to complete Mr Jones’s shed have been determined, Dylan and Fred will work out the staffing and resource requirements required to complete the project by using past experiences/lessons learned, researching commercial databases as well as contacting selected vendors. The project manager and contractors will develop internal and external WBS’s for the project which will detail the labour costs and estimated duration of each activity. Once the WBS has been developed, an estimation will now occur by utilising the detailed information now available. Once the total costs have been added up a request for funding will then be completed. Once the project budget is proven to be within the requested budget and has been approved, a project cost baseline will now be determined after a comparison of each WBS element to ensure the estimated work complies with the project budget. Any adjustments that will be required for the cost baseline will only be done once the project manager has gained authorisation from the project sponsor.

3.2 Cost Tracking

Project team members and contractors who will be contributing to the successful completion of Mr Jones’s shed project will be instructed to record their work on the correct time sheets that will be for each labour category of the WBS cost accounts. The final working day of the week will be the time when the project manager will gather all of this information, and utilise the Earned Value management technique to track the progress of the project on a weekly basis. This comparison will allow the project manager to develop metrics as to how the project is performing compared to the cost baseline, which will also assist with the development of variance analysis, trend analysis and relevant reports

3.3 Cost Metrics and Reporting

Earned value management will be used to measure project cost and schedule performance. The following metrics will be compiled and reported by the Project Manager:

 

  • Cost Performance Index (CPI) will be reported weekly and is the project’s EV/AC
  • Schedule Performance Index (SPI) will be reported weekly and is the project’s EV/PV
  • Control thresholds for CPI and SPI are:
    • Yellow: within +/- 20% must be reported to the Project Sponsor. If it is determined that there is no effect on the project’s cost baseline, then there may be no further action required.
    • Red: greater than +/- 20% must be reported to the Project Sponsor. Corrective measures must be taken to move the project back to an acceptable performance level (process detail in paragraph 3.3).
Earned Value Metric Frequency of Reporting Yellow Red
CPI Weekly 0.8≤CPI≤1.2 CPI<0.8 or CPI>1.2
SPI Weekly 0.8≤SPI≤1.2 SPI<0.8 or SPI>1.2

 

  • Cost Variance (CV) will be reported weekly and is the project’s AC subtracted from EV
  • Schedule Variance (SV) will be reported weekly and is the project’s PV subtracted from EV

A chart will be created for each of the above metrics and will be presented to the project sponsor at the end of each working week until project completion.

 

3.4 Cost Control Measures

If the unlikely event of exceeding the thresholds of CPI or SPI which are stated above, corrective measures must be considered and taken to allow the project to fall back into the acceptable threshold of performance. The project manager will consider all control measures that will aid in the efforts of bring the project back within control. An informative analysis will of the chosen control measure will then be provided for the project sponsor. The analysis will consist of:

  • Description of the selected control measure
  • Staff involved with implementing the control measure
  • A timeline detailing how long it will take to implement
  • Risks or concerns with the implementation
  • Estimated effect on the project performance

All control measures will be reviewed by the project sponsor and the project manager will complete all necessary change request forms required by the projects change control procedures. If the control measure is approved, the project manager will then be in charge of implementing the change.

In worst case scenarios, it may be a last resort option to re baseline all costings required to complete the project. This action is one that should be avoided, but if necessary the project sponsor can authorise this action to take effect.

 

4.0 Approvals

As mentioned earlier on in the cost management plan (3.0), two budgets were to be developed detailing two different approaches as to how the project will be completed. Both budgets came within the requested $40,000 limit and both have different levels of build quality.

The high-quality build consisted of higher quality materials which have the benefit of longer warranties, have longer life expectancies, higher capacity for electrical outlets, larger restroom, more storage opportunities, and also have a more appealing appearance throughout the whole shed. As well as the higher-grade materials budgeted, selecting plant and equipment that was to be hired for job completion also were of a higher quality standard which in many cases could potentially speed up the build process.

The other budget consisted of standard industry materials and equipment to be used. The materials used in this proposal represent a quality product, but the warranty length is less and may have a selected taste in regard to product appearance. But all materials perform the same duties and have the same purpose as the ones proposed in the higher priced project budget. This budget was designed to fit the customers needs and nothing more. Unlike the other proposal, which was to provide the best possible experience whilst staying within the required budget.

 

The signatures of the people below indicate an understanding in the purpose and content of this document by those signing it.  By signing this document you agree to this as the formal Cost Management Plan for the Mr Jones’s Shed Project.

Approver Name Title Signature Date
Fred Project Sponsor
Dylan Project Manager

 

 


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