If you are writing a cost management plan for your business or event project, you may be lost as to what sections it should include and what kind of information should be in each section. Here are the seven key elements to add to your cost management plan and how to do it.
1. Units of Measurement
The first section in your cost management plan should be the Units of Measurement section. It is an essential part of the standards you will use to measure financial or any other aspect of your business project or event.
It is crucial that you decide what units of measurement you will be using for measuring budget and time, especially if you will be working with multiple currencies or a similar set of varying units. Keep in mind these two things when writing about the units of measurement:
- Location: What is the location of your project? Where will it be held? Depending on the country or even the region in a specific country, you will need to use certain units of measurement. For example, the United States uses inches, feet, and miles for measuring length, while Canada has centimeters, meters, and kilometers. Since you will be measuring certain materials to decide their cost, you will need to know the location to decide on the appropriate units of measurement.
- Specificity: Even if you know the location, your project may be different from others in the country. This is why you must keep in mind whether or not you are making a cost management plan for a specific project. If there are any other peculiarities, you can list them in the last section titled Additional Details, but when it comes to units of measurement, make sure to outline it here.
2. Rules for Measuring Performance
The second section of your cost management plan should be called Rules for Measuring Performance. You may think that this is a somewhat of an unnecessary part, but it is actually closely related to many other sections in your cost management plan and is an integral part of it.
This section has to consider such things as:
- Earned Value Management: The earned value management technique is commonly abbreviated as EVM. It is one of the most common techniques used to measure the cost performance of a certain project. Of course, you can choose another method for performance measurement, but this is a highly recommended one. In any case, you have to mention the technique you chose in this section.
- Percent Completion: The percent completion method is one used for activities and measuring their different aspects. Usually, there are three main "stages" involved. The first is a project not yet started, the second is one that is half-done, and the third is 100% complete. Your method of evaluating the activities should be outlined in this section of your cost management plan.
- Anything Else: In addition to the two points above, add any other rules you have for measuring performance. They will supplement the units of measurement you use to help you create certain standards for your project.
3. Thresholds of Control
The third section is titled the Thresholds of Control. These will mostly be helping you to be in control of your business or event project and manage it effectively. In any way, this is not the most important section in your cost management plan but it is still necessary.
Here are the basics of your Thresholds of Control section:
- Budget: First, remind yourself about your project budget. The conditions will be different depending on whether you are managing a multi-million project or a one-thousand-dollar one. In fact, your budget determines your whole cost management plan and how you go about it.
- Safety: Never forget about safety. Even if you are setting a certain control threshold that is the approximate number you calculated, you should still add or subtract (depending on the situation) an amount for safety. After all, you are dealing with money, so you should be more than careful with your job.
- Thresholds: And finally, set thresholds for control. They will serve as a kind of an alert for you in case you get behind the schedule. For example, your project has a budget of $100,000. Set a threshold of $1000. This means that if you get behind on $1000, you will need to take corrective actions.
4. Levels of Precision
The forth section in your cost management plan will be the Levels of Precision. This section is closely related to the Units of Measurement and Rules for Measuring Performance. Basically, it has many standards that are used for better control and insight into the project.
When writing Levels of Precision, keep in mind such things as:
- Material: How precise should one be when measuring the material needed for the project? If a miscalculation of 3 cm is acceptable, then note it down. If a miscalculation of 5 inches is acceptable, then include that.
- Numbers: How about the number of decimal places in your calculations? This is especially important for bigger projects that use millions of dollars and materials in the process. Decide whether you will be using tenth, hundredth, or thousandth in decimals.
- Deadlines: How many overdue days or hours can be overlooked? Is it really that necessary to always stick to the deadlines or they are more flexible? This is very important as it will also have to correspond to the timeframes listed in the project plan.
- Exceptions: Lastly, if there are any exceptions to those rules, you need to note them down in this section. They are extremely important in order to avoid misunderstandings.
5. Levels of Accuracy
The fifth section is titled the Levels of Accuracy. While the Levels of Precision section is about rounding numbers up or down, measuring materials, overlooking the time, and accepting exceptions, the Levels of Accuracy section deals with percentage and its acceptable range.
Along with the Units of Measurement and the Levels of Precision, the Levels of Accuracy section aims to create consistency during the planning, monitoring, and controlling of the costs. For example, if the cost happens against a certain activity within a defined range, then it will not be responded. On the other hand, if the cost goes above that range, the activity will be responded.
Let's take a simple situation to better understand what this means. Imagine that you have a situation when your activity cost is $1000. If your accuracy level is +/-10%, then you have two scenarios in which you could act:
- The cost during execution is $1090. This means that this cost will be considered as it fits the accuracy level.
- The cost during execution is $1150. This means that this cost will not be considered as it doesn't fit the accuracy level.
6. Reporting Formats
The sixth section in your cost management plan is the Reporting Formats section. These are usually much easier to determine than the information for other sections, so you will not have problems with this part.
To write a great Reporting Formats section, ask yourself such questions:
- What is the format for reporting? The format of the reports should be explained in detail so that the team members know beforehand how the report should look like. In fact, you can even add a template if you have one (they can be extremely useful).
- What should be included in the reports? Any and all details that must be written into the report have to be listed here. If the first question is about the general idea, this question is more detailed and requires you to be more attentive to the information you use here.
- How often should be the reports sent in? Think of whether or not you already have set deadlines for reporting. If there are milestones that must be met, they can serve as the reporting points.
7. Additional Details
The last section of your cost management plan is titled Additional Details. It can be long or short depending on how many, well, additional details you have. Virtually, there can be dozens of minor details that didn't fit into other sections and you decided to leave them for later. This is the section for them.
Some additional details you could consider adding are:
- Funding Choices: These are the kind of funding you want to receive. You can also think of the ways of getting that funding such as cash, bank transfers, and so on.
- Cost Recording Procedure: This is how you will keep track of all the expenses. Will it be a separate notebook or something digital such as an Excel document? You can also name the person who will be in charge of this task.
- Additional Budget: If you know that you may require an additional budget at some point, make sure that you outline the ways of how this budget can be acquired and from where.
- Corporate Tools & Applications: If there is software such as special corporate tools or applications that will be required to keep track of the finances, include them in this section.
All in all, you can write a cost management plan even if you haven't written one before. Just follow the steps in this guide and include all the necessary sections. Then, you will be all good with your cost management plan.