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Keeping costs under control is important when running projects. If you’re not able to create accurate budgets you run the risk of spending too much money on projects that don’t bring in an equal amount of profit or growth, which isn’t going to help your business succeed.
That’s why it’s important to create systems that help you plan and manage the money that’s required for your projects. It’s not enough, however, to put numbers into a spreadsheet and hope it all works out. You need to create systems that help you accurately predict the cost of any given project without missing any of the critical pieces of information. Of course, because we’re big fans of building things like this, we have a cost management plan template that’s perfect for helping you put together budgets.
What is a project cost management plan?
A cost management plan is a way for businesses to plan and implement project budgets to optimize project costs. Cost management plans help project managers accurately calculate the costs associated with the project based on project scope, timelines, and resources needed to complete a project
Cost management plans give project teams a way to manage how resources are allocated during a project. Cost management plans contain as much cost tracking information as possible about both direct and indirect costs related to a project. Direct costs would be staffing, while indirect costs would include things like any outside meeting rooms you need to book or even lunch costs for big sprints. You may also consider using a to track all aspects of your project.
What is the purpose of a cost management plan?
The purpose of a cost management plan is to provide a roadmap for the project sponsor and other project stakeholders to follow to help control spending over the course of milestones in the project. Without these plans, it’s too easy to accidentally spend more money than you’d intended on a project. If you’re not following a plan that provides the guidance needed, you can unintentionally do things like bringing in too many team members or spend too much money on the tools needed to complete the project.
6 key elements of the cost management plan
The specifics of a cost management process are going to vary not only from business to business, but also from project to project. At their core, however, are the following details:
1. Cost estimation
Cost estimation is a fairly loose and flexible estimation of how much money you’re going to need to run the project. This is going to change as the project takes shape, but your goal here is to use past experiences with similar projects to create a cost baseline for the project. As the project develops, this is going to change, especially if deliverables change. But this rough number helps you with the rest of your planning.
2. Project budget & resource planning
Once you’ve completed the cost estimation, you go deeper into the numbers and create a detailed budget that helps you plan out the resources you’re going to need during the project lifecycle. While the cost estimation was a rough number, the project’s budget helps you dial in on exactly how much you’ll need for the project based on what resources you use.
You need to create as detailed a list of necessary resources as possible, complete with how much you expect each resource is going to cost. By the end of this step, you should have a very good sense of the total cost of your project.
3. Cost control
With a formal budget in place, you now have a baseline that helps you control costs. can now be based on the numbers that you put into your budget. This gives you a sense of how accurate your initial budget was (when compared to real-world numbers) and gives you a way to not spend more money than needed when you’re in the middle of the project.
When you’re running the project, keep accurate records of how much you’re actually spending on the items listed in your budget. You’ll be able to use this data to create more accurate budgets in the future.
4. Reporting format
Come up with both a timeline for reporting and a format that works best for your business. You’ll want to make sure that you’re capturing information that is relevant to the project, such as how much money has been spent to date, what resources you’ve used, and whether or not you’re on time.
This information will help you create better plans for future projects and give you a sense of how much things changed from the start to the end.
5. Cost variance & change control process
Because very little is static in the world, you’ll need to have a process in place for dealing with change requests. Not only do you need to have a solid change control process (we’ve got a that can help with that), but you’ll need to know how much wiggle room you have within your budget. Ideally, you already create a budget that has some space for aspects of the project that might cost more than estimated, but you still need to be sure that you have a process that helps you manage cost variance during the project. You’ll need to establish control thresholds to ensure that you don’t get too many requests over the project.
6. Measuring success
Finally, you need a way to do performance measurement and see whether or not the project was successful. First, you need to define what success looks like (is it coming in under budget, is it being ahead of schedule?). One of the reasons for this is to help you understand whether or not the project was worth it and whether you should chase similar projects. You’ll also need to report to stakeholders throughout the project.
For example, if a project is hard to manage, but it helps you deliver new features that potential clients have been asking about, it’s probably worth it. However, if a project was expensive and took longer than expected without bringing the same value (new features for new customers), it likely doesn’t make sense to pursue similar projects.
A lot of teams measure using metrics like planned value (how much you plan to spend), actual cost (how much you spent), and earned value (which measures progress and performance). We have more about those below and how you can track them.
How to make an effective cost management plan.
Creating a cost management plan might seem like it’s a complex task, but it’s mostly about listing everything you need and then listing how much it costs. The best way to do it is to break it into smaller chunks that can be filled out quickly in a template.
Create a list of everything that is going to be done during the project. Every task, subtask, and even meetings should be included in this as they all add to the overall cost of a project. It helps to make a note of what success looks like for a project at this point. Estimate total cost. Based on previous experience with similar projects and the resources you’ll need to complete the project (based on the list you just created), come up with a rough cost estimate for the project. Make a budget. Here’s where you get granular and list out all the resources you’ll need and how much they’re going to cost for the project. This might change when you factor in actual costs of these resources, but it should be fairly accurate at this point. Measure success. Define the metrics that you’re going to use to measure the success of the project and give yourself a place to track those metrics. You’ll want to come up with a regular cadence for providing status reports to help with measuring success.
👉 Get started with this project cost management plan template
After you copy this template, you can start tracking your project’s costs on a weekly basis and compare them with the earned value and planned value of your project.
Keep your project on budget with Coda's cost management plan template
Step 1: Create your project team, tasks, and budget.
On the page (feel free to rename this page to the name of your project), you have a few key elements to fill out for your project. First, add your team members to the table so everyone on the project team knows each others’ roles. Then, start adding tasks to the table. This can also be used as your work breakdown structure (WBS). It’s important to fill out the Cost Estimate column in this table. Finally, enter in the entire project budget in the text box at the bottom of the page once you have an idea of all the project costs.
Step 2: Enter aggregate costs on a weekly basis.
On the page, you will see some high-level stats at the top of the page like the project’s total estimated costs, Earned Value, Planned Value, etc. In order for these numbers to properly reflect the progress of your project, select today’s date in the date picker. This date is usually the first day of the week. After you select the date, click on the Add This Week’s Costs button. You’ll then see the table below populate with all the tasks or work breakdown structure you added in the table in the previous step. Each week after you hit this button, enter in the Actual Cost (AC) for each task in the table. This is the aggregate or cumulative cost for a specific task on that given date or week. You should also drag the slider in the Completion (%) column to show how close to completion that task is.
Step 3: Visualize cost management metrics.
As you start adding in the weekly costs and completion percentages for your tasks or work breakdown structure, the summary stats at the top of the page will accurately reflect the status of your project. You will also see a chart on the page giving you and our team a visual of the Actual Cost, Planned Value, and Earned Value of your project. These are all important cost management metrics when you are monitoring the status of your project and for keeping costs under control.
Cost management plan template FAQs
What is cost management?
Cost management in project management is the process of planning, allocation, and managing the resources you need throughout the project. It’s how project managers keep projects within their budget and on time. This is a necessary part of the project planning process that should be done as early as possible to help bring enough resources to a project.
How do you plan a project cost?
Planning project costs involves breaking a project down into individual pieces that help you measure all the resources you’ll need for a project. This includes details like materials you’ll use during the project, staffing costs, rentals, tools, and anything else related to the project. The more granular you go, the more accurate your plan will be because you’re considering all possible costs that might impact the project.
What is the difference between budgeting and cost management?
On the surface, budgeting and cost management seems like the same thing, but they’re not. Budgeting is the process of creating a detailed list of all expenses related to a project with the goal of determining how much money you’re going to need to complete the project.
Cost management, on the other hand, is planning and managing the resources you need for a project. It’s the big picture of the entire project and helps you create a budget and handle the resources you'll be using in a way that helps you come in under budget.
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