Cost management plan
The project manager and the Cost management plan
The project manager will be responsible for managing and reporting project costs throughout the project period. During the monthly project status meeting, the project manager will meet with management to present and review the project implementation costs for the previous month. Productivity will be measured using earned value. The project manager is responsible for accounting for cost variations and presents the project sponsor with options for returning the project to the budget. The project sponsor has the authority to make changes to the project to bring it back within budget.
Cost management approach
A cost discrepancy of +/- 0.1 in the cost indices and timetable will change the cost status of the alert; as such, these values will be changed to yellow in the project status reports. Cost deviations of +/- 0.2 in the cost and performance indices will change the cost status to the alert stage; as such, these values will be red in project status reports. This will require corrective action by the project manager to reduce costs and / or plan performance indices below alert levels. Corrective actions will require a project change request and must be approved by the Project Sponsor before they can reach the project scope.
Measuring project costs
Project performance will be measured using Earned Value Management. The following four earned value indicators will be used to measure project effectiveness:
- Difference in graphics (SV)
- Cost Difference (CV)
- Schedule Performance Index (SPI)
- Cost Performance Index (CPI)
If the Scheduling Performance Index or the Cost Efficiency Index deviates between 0.1 and 0.2, the project manager should report the reason for the exception. If the SPI or CPI deviates more than 0.2, the project manager must report the reason for the exception and provide the management with a detailed corrective plan to return the project implementation to acceptable levels.
Cost management reporting will be included in the monthly project status report. The monthly status report of the project will include a section entitled "Cost Management". This section will contain the earned value metrics identified in the previous section. Any deviations in costs beyond the thresholds set out in this cost management plan will be reported on the inclusion of all planned corrective actions. Change requests triggered by project cost overruns will be identified and tracked in this report. See Change management plan
The control thresholds for this project are CPI or SPI below 0.8 or greater than 1.2. If the project reaches one of these control thresholds, a plan for corrective cost change variations is required. The Project Manager will submit corrective action options to the Project Sponsor within five business days of first accounting for cost variance. Within three business days, when the Project Sponsor selects an option for corrective actions, the Project Manager will submit to the Project Sponsor an official plan for corrective variations in cost variations. The corrective action plan for cost modification shall detail the actions required to return the project within the budget, as well as the means by which the effectiveness of the actions in the plan will be measured. Once the cost change adjustment plan is adopted, it will become part of the project plan and the project will be updated to reflect the corrective action.