Understanding the Difference Between Planning Cost Management and Cost Management Plan in PMP

In the project management realm, particularly within the context of the Project Management Professional (PMP) certification, the terms planning cost management and cost management plan are often discussed. While they are interconnected, they represent distinct concepts. Let's delve into the nuances of each.

Planning Cost Management

Definition: This is the process of defining how project costs will be estimated, budgeted, managed, monitored, and controlled.

Purpose: The primary objective of planning cost management is to establish a framework for managing costs throughout the project lifecycle. This involves setting out the methods and tools that will be utilized to effectively manage and control costs.

Activities Involved:

Identifying cost management processes: Determine the specific processes that will be used for cost management. Establishing the approach for estimating costs: decide on methods like bottom-up estimating, analogous estimating, or parametric estimating. Deciding on the level of accuracy required for cost estimates: ensure that the estimates provide the necessary level of detail and precision. Defining how costs will be tracked and reported: outline the procedures for monitoring and reporting cost data throughout the project. Managing expectations: address questions such as when invoices can be raised, how to validate payments, and how to handle supplier resource submissions.

Cost Management Plan

Definition: This is a formal document that outlines how the costs will be managed throughout the project.

Purpose: The cost management plan serves as a guideline for utilizing and controlling project costs. It is a subsidiary plan of the project management plan and provides a detailed roadmap for managing costs effectively.

Contents:

Cost estimation procedures: the methods and techniques that will be used for cost estimation. Budgeting guidelines: the rules and procedures for budgeting project costs. Cost control measures: strategies and actions to manage and control costs within predefined limits. Reporting formats and frequency: the formats and schedules for reporting cost data. Roles and responsibilities related to cost management: the assignments and expectations for individuals and teams involved in managing costs.

Key Differences

Nature: Planning cost management is a process, while the cost management plan is the output or document resulting from this process. Focus: Planning cost management focuses on the methodology and approach to managing costs. In contrast, the cost management plan provides specific guidelines and procedures to be followed.

Activity vs. Output

Understanding the difference between an activity and an output is crucial for grasping the distinction between these concepts. Consider the example of applying for a job. A series of activities take place: your interviews, followed by an offer released as the output. This output ensures that both the employer and the candidate are on the same page. Similarly, in a project, stakeholders have interests and are impacted by the project. They must provide their inputs, and as a project manager (PM), you must collect these inputs through various activities such as meetings, interviews, and discussions.

To get all stakeholders on the same page, a document such as a Stakeholder Register, Stakeholder Engagement Plan, or Project Management Plan serves as an output. In the context of planning cost management, the PM initiates discussions with project stakeholders and sponsors to gather their expectations on cost management. Activities such as:

Identifying potential cost issues Researching and determining validation methods for supplier payments Creating time-sheet submission processes for supplier resources Developing a process for expense reimbursement claims by supplier teams Establishing escalation matrices for cost escalations at various levels

Planning cost management involves these activities, ensuring that all bases are covered. The output, the cost management plan, documents all these inputs, reviews them with stakeholders, and ensures that everyone agrees with the plan.