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7 - PROJECT COST MANAGEMENT

For example, the cost management plan can establish the following:

• units of measure. Each unit used in measurements (such as staff hours, staff days, weeks for time
measures; or meters, liters, tons, kilometers, or cubic yards for quantity measures; or lump sum in
currency form) is defined for each of the resources.

• Level of precision. The degree to which activity cost estimates will be rounded up or down (e.g.,
US$100.49 to US$100, or US$995.59 to US$1,000), based on the scope of the activities and magnitude
of the project.
• Level of accuracy. The acceptable range (e.g., ±10%) used in determining realistic activity cost estimates
is specified, and may include an amount for contingencies;
• organizational procedures links. The work breakdown structure (WBS) (Section 5.4) provides the 7
framework for the cost management plan, allowing for consistency with the estimates, budgets, and
control of costs. The WBS component used for the project cost accounting is called the control account.
Each control account is assigned a unique code or account number(s) that links directly to the performing
organization’s accounting system.
• control thresholds. Variance thresholds for monitoring cost performance may be specified to indicate
an agreed-upon amount of variation to be allowed before some action needs to be taken. Thresholds are
typically expressed as percentage deviations from the baseline plan.
• rules of performance measurement. Earned value management (EVM) rules of performance
measurement are set. For example, the cost management plan may:

○ Define the points in the WBS at which measurement of control accounts will be performed;
○ Establish the earned value measurement techniques (e.g., weighted milestones, fixed-formula,
percent complete, etc.) to be employed; and
○ Specify tracking methodologies and the earned value management computation equations for
calculating projected estimate at completion (EAC) forecasts to provide a validity check on the
bottom-up EAC.

For more specific information regarding earned value management, refer to the Practice Standard for
Earned Value Management – Second Edition.

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