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Friday, July 8, 2011

Chapter 86: Controlling Cost

Controlling cost means monitoring and controlling updates and changes to costs, budget, and the cost baseline of the project. Monitoring and controlling costs has two dimensions to it: expenditure of project funds and the work performed as a result of those expenditures. One major aspect of cost monitoring and controlling is to determine the relationship between the expenditures and the accomplishments. The cost performance depends on this relationship. The other main aspect is to control the changes to the approved cost performance baseline.

Like any other change, change in cost and budget must also be processed through the integrated change control process and should only be implemented after its approval.

To be more specific, monitoring and controlling the project cost includes the following tasks:
• Influence the factors that can create changes to the approved cost baseline.
• Monitor the following:
o Work performed against the funds expended
o Variance of cost performance from the approved baseline
• Prevent unapproved changes from creeping into cost reports and expenditures.
• Act to keep cost overruns within the planned acceptable limits.
• Ensure the following:
o Change requests are dealt with in a timely fashion and managed as they occur.
o Expenditures do not exceed the approved budget by period or by total amount. Any change to the budget must be approved before implementation.
• Communicate with the appropriate stakeholders about the cost associated with the approved changes.

Cost is monitored and controlled by using the Control Cost process illustrated by the picture below:

The input items to this process are the project management plan, work performance information, project funding requirements, and organizational process assets. The items in the project management plan useful for controlling cost are the cost management plan and the cost performance baseline. The cost management plan describes how the cost will be monitored and controlled. The cost performance baseline or cost baseline in short is an approved budget; that is, the cost with the timeline for the project attached to it. Work performance information contains performance related data from the execution of the project, including how much cost has been incurred in performing certain tasks. This cost can be compared to the planned cost to make the cost performance measurements. Project funding requirements are part of the cost baseline. Organizational process assets that can influence the cost control includes cost control related policies, procedures, and guidelines; monitoring and reporting methods; and tools used in controlling cost.

The Control Cost process converts the cost related project performance information into project performance measurements by using some tools and techniques, such as the earned value technique, variance analysis, and forecasting. These tools and techniques will be discussed separately. Performance reviews compare the actual progress to the planned progress. Project management software can be used for earned value management.

Work performance measurements made by comparing the work performance information to the planned performance are the obvious output of the Control Cost process. The analysis of the project performance can result in making some change requests to keep the project on track. The budget forecasts can be made from the earned value analysis. The causes of the variance of the progress from the planned progress and the lessons learned become part of the organizational process assets that can be used in future projects.

A common input to controlling scope, schedule, and cost is work performance information, and a common output is work performance measurements. That means these three processes use work performance information to make performance measurements.

Prev: Controlling Schedule

Next: Measuring Performance

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