The Project Manager is responsible for monitoring and reporting on the projects cost throughout the project lifecycle. The PM will hold bi-monthly project status meetings with the Project Team (PT). The PM will meet with Information Technology Leadership Council (ITLC) monthly to present and review the project's cost status for the previous weeks. The PM will use Earned Value for measuring project cost performance. The PM is responsible for accounting for cost variations and presenting them to the Project Sponsor and ITLC with options for getting the project back on budget. The Project Sponsor has the authority to make changes to the project to bring it back within budget.
Reporting for cost management will be included in the bi-monthly project status report. This report will contain the Earned Value Metrics that will be defined under the control costs process below. All cost variances outside of the thresholds identified in this Cost Management Plan will be reported on including any corrective actions that the PM has planned. Change Requests, which are triggered based upon project cost overruns, will be identified and tracked in this report. A change request process is listed in the last page of this chapter.
Estimate Costs Process
In this part of the cost management process, the activities cost estimates are determined. The cost management technique the PM will use is the bottom-up estimation. In the Bottom-up Estimation technique, you aggregate individual estimates for each task in the WBS. You would then perform this calculation for all activities. Since the Bottom-up estimation technique, uses estimates from a task level, it is imperative for you to make accurate task estimates. Some best practices you should use are:
Consulting with Subject Matter Experts
Leverage the people that will actually do the work for information
Use historical data from past projects
Document all the cost estimates in a spreadsheet for future use in the cost management plan. Record the entire costs associate with each work activity such as hardware, software, vendor fees, etc. You will also need to estimate the amount of hours, weeks, or days it will take to complete each WBS activity and record that information in the spreadsheet. Assuming that each WBS activity has been assigned to a project team member, calculate the labor cost of each activity based on the hourly pay rate of the responsible team member. Record that data in the spreadsheet and total up all the hardware, software, labor costs, vendor fees, etc. for a total project cost estimate.
Determine Budget Process
In this process, the cost baseline and funding requirements are determined. You will use Project Cost Management technique Funding Limit Reconciliation. This technique will be used because WCU has limited funding for projects, which affects the project cash flow. The funding is based on a fiscal year and your project budget must adhere to the constraints imposed by the funding limit.
You will use funding limit reconciliation to avoid large variations in the expenditure of project funds. Funding Limit Reconciliation may lead to revisions in the schedule and resource allocation. Therefore, the project budget directly impacts not only the cost, but also the schedule and scope of work that will be completed. Instead of committing to a budget for the entire project, commit to the budget for each release. In addition, watch out for scope creep during project execution. Otherwise, you will go over budget.
Control Costs Process
In this process, performance measurement and forecasting is conducted. Project costs will be managed using the percent complete method for the activities in the WBS. The PM will work with the PT at bi-weekly meetings to make a best estimate of completion percentages of work activities. It would be helpful to define the metrics to use for evaluating the percentages. Since all projects are not made equal, the metrics will need to be determined for each project. List the percentages in dollar terms, rounding them to the nearest whole dollar. Earned Value calculations for the work activities will measure and manage the cost performance of the project. Responsibility for work activities will be assigned at the work package level. Limit the amount earned to 80 or 90 percent until the work activity is 100 percent complete.
An Earned Value Management fundamental formula needs to be determined in order to proceed in the cost control process. The Earned Value (EV), the Actual Cost (AC), and the Planned Value (PV) need to be determined in order to find the project cost variances. The PM will calculate and document these values in a spreadsheet. Earned Value Management Variance Formulae leverage the Earned Value Management Fundamental Formulae to determine the variances pertaining to project cost and schedule. The following four Earned Value metrics will be used to measure to projects cost performance. The PM will calculate each of these and document them in a spreadsheet with the EV, AC, and PV.
Cost Variance (CV): This is the completed work cost when compared to the planned cost. Cost Variance is computed by calculating the difference between the earned value and the actual cost, i.e. EV - AC. As you can deduce from the formula, Cost Variance will be negative for projects that are over-budget. Monitoring project cost variance is critical to ensuring the project is delivered on budget.
Schedule Variance (SV): This is the completed work when compared to the planned schedule. Schedule Variance is computed by calculating the difference between the earned value and the planned value, i.e. EV - PV. A positive Schedule Variance tells you that the project is ahead of schedule, while a negative Schedule Variance tells you the project is behind schedule. Monitoring Schedule Variance is critical to delivering the project on time.
Schedule Performance Index (SPI): Represents how close actual work is being completed compared to the schedule. SPI is computed by EV / PV. A value of above one means that the project is doing well against the schedule.
Cost Performance Index (CPI): Represents the amount of work is being completed on a project for every unit of cost spent. CPI is computed by EV / AC. A value of above 1 means that the project is doing well against the budget.
Cost variances of +/- 0.1 in the cost and schedule performance indexes will change the status of the cost to a warning level; as such, those values will be changed to yellow in the project status reports. Cost variances of +/- 0.2 in the cost and schedule performance indexes will change the status of the cost to in trouble level; as such, those values will be changed to red in the project status reports. This will require corrective action from the PM in order to bring the cost and/or schedule performance indexes below the in trouble level. Corrective actions will require a project change request and be must approved by the Project Sponsor and ITLC before it can become within the scope of the project.
If the Schedule Performance Index or Cost Performance Index has a variance of between 0.1 and 0.2 the PM must report the reason for the exception to the Project Sponsor and ITLC. If the SPI or CPI has a variance of greater than 0.2 the PM must report the reason for the exception and provide a detailed corrective plan to bring the projects performance back to acceptable levels.
Performance Measure
Yellow
Red
Schedule Performance Index (SPI)
Between 0.9 and 0.8 or Between 1.1 and 1.2
Less Than 0.8 or Greater than 1.2
Cost Performance Index (CPI)
Between 0.9 and 0.8 or Between 1.1 and 1.2
Less Than 0.8 or Greater than 1.2
Cost Variance Response Process
The Control Thresholds for this project is a CPI or SPI of less than 0.8 or greater than 1.2. If the project reaches one of these Control Thresholds a Cost Variance Corrective Action Plan is required. The PM will present options for corrective actions to the Project Sponsor and ITLC within five business days from when the cost variance is first reported. Within three business days from when the Project Sponsor and ITLC select a corrective action option, the PM will present the Project Sponsor and ITLC with a formal Cost Variance Corrective Action Plan. The Cost Variance Corrective Action Plan will detail the actions necessary to bring the project back within budget and the means by which the effectiveness of the actions in the plan will be measured. Upon acceptance of the Cost Variance Corrective Action Plan it will become a part of the project plan and the project will be updated to reflect the corrective actions.
Cost Change Control Process
The cost change control process will follow the established project change request process. The project sponsor must approve approvals for project budget/cost changes. The Project Change Register (PCR) and PCR Form are the primary tools to document, record and track any change that could impact scope or budget. These documents, presented in Appendix A and B respectively (Henning, 2013), will be used to log PCR's and track them through execution. When a potential change is identified, it should be brought to the attention of the PM for initial evaluation. Based on the merit of the proposed change, and it's potential of impacting scope, schedule and budget, the PM will decide on the proper course of action. Normally the results of this first evaluation will be one of the following:
Does not meet the criteria of a change
An alternative approach negates the need for the change
The potential impact falls within the PM's authority
The PCR will require review by the Change Control Board (CCB).
If the proposed PCR is accepted by the PM, it will be assigned a control number and entered in the PCR register along with the title, a brief description, priority, name of originator and the date issued. 
The originator with the assistance of the PM will complete the PCR form. The following information will be documented:
Date required - the desired date for execution
Reason for the change - explanation of why the change is required
Description of the change - detailed description of the change including an alternative
Cost estimate - the estimated cost of implementing the change
Ramifications if the change is not accepted - expected impact if change is not accepted
ITLC will determine the execution authority of the PM. If the PCR falls within these parameters, the PM will assess the merits of the PCR and render a decision. However, if the PCR requires review by the CCB, the PM will distribute the PCR for discussion at the next scheduled CCB meeting. If the PCR is of a high priority, the PM has the option of scheduling a conference call with the CCB to expedite reaching a decision on the disposition. 
The CCB will review the merits of the proposed changed taking into account the impact on the project budget and schedule. The CCB will have the final decision making authority for any PCR's. The results of either the PM's decision and that of the CCB will be entered on the PCR form, with the PCR Register updated accordingly.
Appendix A - Project Change Control Register Example
A new register should be created for each project
The PM will create, update and manage this register
PCR Number
PCR Title
PCR Description
Submitted By
Date Issued
Financial Impact
Date Required
Approval Status
Execution Status
001
Request Funds
Request for budget increase
First name Last Name
01/01/14
$3,000
2/1/14
Approved by CCB
Not yet executed
002
Appendix created by Brandy Henning on 4/24/2013
Appendix B - Project Change Control Form
A new form should be created for each change request
The change requestor will fill out and submit to the PM
Project Name:
Project Phase:
Project Manager:
Change Requestor:
Request Title:
Request Number:
Date Requested:
Date Required:
Reason For Change:
Description of Change:
Cost Estimate:
Ramifications:
Approved:
Rejected:
Pended:
Deferred:
Reason for Rejection or Deferral:
PM
CCB Chair
Name:
Name:
Signature:
Signature:
Date:
Date:
Appendix created by Brandy Henning on 4/24/2013
