Cost Management. Those are responsible for managing the project cost is mainly interested in successfully achieving two important objectives. The first is how to ensure that actual project spending is aligned with the baseline spending plan or what is known for many the time-phased budget or budget cost of work scheduled (BCWS or PV). The second objective is to ensure that the actual project cost (AC) does not exceed the approved project budget at completion (BAC).
Achieving those two objectives require having a number of document templates to build the data to report on those two objectives. The fist document template is the Project Cost Estimate which will capture the cost details of the different project elements which are usually aligned with the WBS. The content of this template could differ depending on the level of details that the company wants to capture. It is also very common to have multiple revisions of the cost estimate template as the company will prepare different cost estimates depending on the available project scope level of details.
The second document template is the Project Budget which will be used to develop the project time-phased budget. This document will be generated from the Project Cost Estimate document template as it will provide the basis for determining the budget cost for each WBS level. The project budget will also include additional cost elements that the cost estimate might not have such as project contingency, funding cost, overhead and profit among others. The time-phased budget requires having a start and finish date for each budget item which can be linked to the project schedule activities. Similar to the Project Cost Estimate, It is common to have multiple revisions of the Project Budget template as the company will have different project budgets depending on the available project scope level of details.
The third document template is the Project Budget Request which will be used to capture all changes and adjustments to the approved Project Budget. Budget revisions are needed when there is either a change for the baseline project scope or there is a need to transfer funds from one center or WBS level to another. This document template should explain the reason for this change and cost centers as well as the amounts for those adjustments.
The above three document templates mainly have to do with establishing and formalizing the project target cost for which the cost of executing the project scope should not exceed. On the other hand, there are other document templates that will be needed to capture the data associated with the project actual cost. The first of those is what is known the Commitment Contract. This document template will be used to capture what is known as the selling price for the selected project scope of work. One a single project, it is very common to have more than one commitment contract as the project delivery will usually involved more than one entity. This document template will also capture the contract terms such as retention percentage, payment against material on site, advance payment recovery, taxes among others.
The commitment contract template needs to capture data that relate to the scope of work that will be delivered through the contract which can be best described by selecting the associated WBS levels. For each WBS level, the agreed selling price must be provided. For some projects, the selling price for a WBS level could have different currency than other WBS levels in the commitment contract. In addition, it is very common to capture the start and finish date for each WBS level to provide what is known as the Cost Loaded Schedule or Anticipated Cost. This will help in ensuring that the anticipated project spending is aligned with the planned baseline spending. This will help in supporting the first objective and that is how to ensure that actual project spending is aligned with the baseline spending plan or what is known for many the time-phased budget or budget cost of work scheduled (BCWS or PV).
As it is rarely one will have a project without changes, managing a project requires using a number of document templates that will be used to manage those changes. Some of the common document templates include Potential Change Order, Change Order Request, Proposed Change Order, Change Order and Variation Order among many others. The common data fields in those documents in addition to the project and commitment contract details is the WBS levels that will be affected by the change, associated cost for the change, time extension associated with the change, whether the change is considered to in-scope or out-of-scope and the details of the entities and individuals who are responsible for reviewing and approving the change. The document template will also detail the current revised contract value and completion date.
Another important cost management documented is the Progress Invoice which is used to capture the details of the value of approved completed work that needs to be paid for the company performing the work. This document template will capture the approved percent complete for each progressed WBS level to determine the amount that the project owner needs to pay. This amount is the Actual Cost (ACWP or AC) that the project owner is paying for completed work. When the same approved WBS completion percentage is applied to the approved budget, the project owner can determine the Earned Value (EV or BCWP) for the work performed.
The Progress Invoice and similar to other cost management documents should have built-in formulas to do the calculation associated with those documents. For example, in the Progress Invoice, the document template should calculate the cumulative amount of approved work to date, retention amount and other adjustments needed to comply with the contract terms and conditions. Similar to change management documents, the Progress Invoice will also detail the entities and individuals who are responsible for reviewing and approving the amount to be invoiced and eventually paid.
Of course there are other cost management document templates that could be needed to manage a project depending on what the company wants to achieve. For example, the company could decide on having Fund Authorization, Fund Spending, Fund Changes and Revenue Contract among many others.
To be continued.