Cost management plan tyre recycling plant

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Cost management plan tyre recycling plant

  1. 1. COST MANAGEMENT PLAN CONSTRUCTION OF SCRAP TIRE RECYCLING PLANT VERSION 1.0 DATE 04/08/2013
  2. 2. Cost Management Plan Template Construction of scrap Tire Recycling Plant 1 TABLE OF CONTENTS INTRODUCTION ................................................................................................................................ 2 1. PURPOSE ................................................................................................................................... 2 2. SCOPE ....................................................................................................................................... 2 COST MANAGEMENT APPROACH ..................................................................................................... 4 MEASURING PROJECT COSTS ........................................................................................................... 5 REPORTING FORMAT........................................................................................................................ 6 COST VARIANCE RESPONSE PROCESS.............................................................................................. 6 COST CHANGE CONTROL PROCESS .................................................................................................. 7 1. COST VARIANCES ..................................................................................................................... 7 2. CONSTRUCTION OF SCRAP TIRE RECYCLING PLANT EXECUTIVE STEERING COMMITTEE ......... 7 3. COST RE-PLANNING ................................................................................................................. 7 4. COST RE-BASELINING............................................................................................................... 7 5. COST CLOSEOUT....................................................................................................................... 7 PROJECT BUDGET ............................................................................................................................ 7
  3. 3. Cost Management Plan Template Construction of scrap Tire Recycling Plant 2 INTRODUCTION 1. PURPOSE The purpose of cost management is to ensure the project and its contractors will complete the project within budget. This Cost Management Plan identifies the processes and procedures used to manage costs throughout the project’s life cycle. The plan covers the cost management approach, expenditure tracking, variance analysis, oversight of contractor costs, and reconciliation between the accounting, and project management cost processes. Additionally, the plan covers who is responsible for tracking expenditures, how variances will be addressed, and the cost tracking and reconciliation between the various project management cost processes. 2. SCOPE The scope encompasses the two levels of cost management for OSI projects. One level is the detailed accounting level of tracking budget, expenditures, salary and benefits, and overhead costs in accordance with the normal State of California budget process. The second level is the project management level of tracking costs against work performed in accordance with the OSI Best Practices standards derived from the Project Management Institute’s Project Management Body of Knowledge (PMBOK). Table 1 shows the differences in terminology that will be used in this plan when discussing the two different levels. Table 1. Levels of Cost Management STATE BUDGETING/ACCOUNTING PROJECT COST MANAGEMENT Budget Planning Cost Planning Accounting/Expenditure Tracking Cost Tracking, Reporting and Metrics Changes to the Budget Cost Control and Changes Reconciliation Cost Closeout Adding to the complexity is the interaction of the budget and cost management processes with the contract management (acquisitions and invoicing) and time reporting (attendance and timesheet tracking) processes. All of these processes must interact and reconcile with each other. In the figure below, the items toward the left hand side of the chart represent the state budget, accounting and contract management processes (lightly shaded bubbles). The items towards the right hand side of the chart represent the project cost management processes (white bubbles). The two processes must reconcile at the Initial Baseline, (after the Budget Act is signed) in the monthly attendance and time reporting processes, in the monthly expenditure and cost update processes, and whenever there is a re-plan and a new baseline established.
  4. 4. Cost Management Plan Template Construction of scrap Tire Recycling Plant 3 Figure 1. Relationship of Budget/Accounting Processes to Cost Management Processes CHART COLOR DESCRIPTION White Project Cost Management Yellow Budget Baseline w/possible revisions Pink Funding and Expenditure Documentation Gray Contracts and Invoices The Cost Management Plan clearly defines how the costs on Construction of Scrap Tire Recycling Plant will be managed throughout the project’s lifecycle. It sets the format and standards by which the project costs are measured, reported and controlled. The Cost Management Plan: Identifies who is responsible for managing costs Identifies who has the authority to approve changes to the project or its budget How cost performance is quantitatively measured and reported upon Report formats, frequency and to whom they are presented Tracking & Change Control Planning Readiness Hearings Budget Act Amendments Invoices Initial Baseline Change Control Board Re-Planning Resource Planning Cost Tracking Incorporate Lessons Learned APD FSR BCC Variance Analysis (monthly) Re-Baseline Re-BaselineRe-Baseline Rev 1 Lessons Learned & Closeout Analyze Lessons Learned Archive Cost Data Unacceptable Variance Acceptable Variance Work Authorizations Encumbrances Cost Estimating Cost Budgeting Time Reporting (against WBS)Reconciliation And/Or TAP State/Fed Approvals BCP POs/ Contracts Master Project Cost (to the WBS Level) Expenditures Attendance Tracking Reconciliation
  5. 5. Cost Management Plan Template Construction of scrap Tire Recycling Plant 4 The Project Manager will be responsible for managing and reporting on the project’s cost throughout the duration of the project. During the monthly project status meeting, the Project Manager will meet with management to present and review the project’s cost performance for the preceding month. Performance will be measured using earned value. The Project Manager is responsible for accounting for cost deviations and presenting the Project Sponsor 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. COST MANAGEMENT APPROACH The following section summarizes the project management processes for managing costs on the project as tailored from the PMBOK1 . Step 1 - Cost Planning Step 2 - Cost Tracking Step 3 - Cost Reporting and Metrics Step 4 - Cost Control and Changes Step 5 - Cost Closeout Costs for Construction of Scrap Tire Recycling Plant will be managed at the fourth level of the Work Breakdown Structure (WBS). Control Accounts (CA) will be created at this level to track costs. Earned Value calculations for the CA’s will measure and manage the financial performance of the project. Although activity cost estimates are detailed in the work packages, the level of accuracy for cost management is at the fourth level of the WBS. Credit for work will be assigned at the work package level. Work started on work packages will grant that work package with 50% credit; whereas, the remaining 50% is credited upon completion of all work defined in that work package. Costs may be rounded to the nearest dollar and work hours rounded to the nearest whole hour. Cost variances of +/- 0.1 in the cost and schedule performance indexes will change the status of the cost to cautionary; 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 an alert stage; as such, those values will be changed to red in the project status reports. This will require corrective action from the Project Manager in order to bring the cost and/or schedule performance indexes below the alert level. Corrective actions will require a project change request and be must approved by the Project Sponsor before it can become within the scope of the project. 1 The project has chosen to tailor the PMBOK guidance on Cost as follows: The planning processes of Cost (Resource Planning, Cost Estimating, and Cost Budgeting) have been consolidated into a section called Cost Planning. The PMBOK Controlling processes (Cost Control) have been expanded into four sections called Cost Tracking, Cost Reporting and Metrics, Cost Control and Changes, and Cost Closeout.
  6. 6. Cost Management Plan Template Construction of scrap Tire Recycling Plant 5 MEASURING PROJECT COSTS This section defines how the project’s costs will be measured. The PMBOK focuses on Earned Value Management for measuring and controlling a project’s costs. The project measures four Earned Value measurements; Schedule Variance (SV), Cost Variance (CV), Schedule Performance Index (SPI) and Cost Performance Index (CPI). These four measurements shall provide enough insight for effective management without overburdening the Project Manager with Earned Value calculations and measurements. Schedule Variance (SV) is a measurement of the schedule performance for a project. By taking the Earned Value (EV) and subtracting the Planned Value (PV) we can calculate it. Since EV is the actual value earned in the project and the PV is the value our project plan says we should have earned at this point, when we subtract what we planned from the actual we have a good measurement, which tells us if we are ahead or behind the baseline schedule according to our project plan. If SV is zero, then the project is perfectly on schedule. If SV is greater than zero, the project is earning more value than planned thus it’s ahead of schedule. If SV is less than zero, the project is earning less value than planned thus it’s behind schedule. Cost Variance (CV) is a measurement of the budget performance for a project. Subtracting Actual Costs (AC) from Earned Value (EV) calculates CV. As we already know, EV is the actual value earned in the project. AC is the actual costs incurred to date, thus when we subtract what our actual costs from the EV we have a good measurement, which tells us if we are above or below budget. If CV is zero, then the project is perfectly on budget. If CV is greater than zero, the project is earning more value than planned thus it’s under budget. If CV is less than zero, the project is earning less value than planned thus it’s over budget. Schedule Performance Index (SPI) measures the progress achieved against that, which was planned. SPI is calculated as EV/PV. If EV is equal to PV the value of the SPI is 1. If EV is less than the PV then the value is less than 1, which means the project is behind schedule. If EV is greater than the PV the value of the SPI is greater than one, which means the project is ahead of schedule. A well performing project should have its SPI as close to 1 as possible, or maybe even a little under 1. Cost Performance Index (CPI) measures the value of the work completed compared to the actual cost of the work completed. CPI is calculated as EV/AC. If CPI is equal to 1 the project is perfectly on budget. If the CPI is greater than 1 the project is under budget, if it’s less than 1 the project is over budget. Performance of the project will be measured using Earned Value Management. The following four Earned Value metrics will be used to measure to projects cost performance: Schedule Variance (SV) Cost Variance (CV) Schedule Performance Index (SPI) Cost Performance Index (CPI)
  7. 7. Cost Management Plan Template Construction of scrap Tire Recycling Plant 6 If the Schedule Performance Index or Cost Performance Index has a variance of between 0.1 and 0.2 the Project Manager must report the reason for the exception. If the SPI or CPI has a variance of greater than 0.2 the Project Manager must report the reason for the exception and provide management 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 REPORTING FORMAT Reporting for cost management will be included in the monthly project status report. The Monthly Project Status Report will include a section labeled, “Cost Management”. This section will contain the Earned Value Metrics identified in the previous section. All cost variances outside of the thresholds identified in this Cost Management Plan will be reported on including any corrective actions which are planned. Change Requests, which are triggered based upon project cost overruns, will be identified and tracked in this report. COST VARIANCE RESPONSE PROCESS This section of the Cost Management Plan defines the control thresholds for the project and what actions will be taken if the project triggers a control threshold. As a part of the response process the Project Manager typically presents options for corrective action to the Project Sponsor who will then approve an appropriate action in order to bring the project back on budget. The Project Manager may propose to increase the budget for the project, reduce scope or quality, or some other corrective action. 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 Project Manager will present the Project Sponsor with options for corrective actions within five business days from when the cost variance is first reported. Within three business days from when the Project Sponsor selects a corrective action option, the Project Manager will present the Project Sponsor 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.
  8. 8. Cost Management Plan Template Construction of scrap Tire Recycling Plant 7 COST CHANGE CONTROL PROCESS 1. COST VARIANCES For variances against the baseline of more than ten percent at the Level 1 WBS deliverable items, the rational for the variance is documented in the associated report and discussed at the management staff meeting. If the variance does not affect the overall project cost baseline, no other actions are required. 2. CONSTRUCTION OF SCRAP TIRE RECYCLING PLANT EXECUTIVE STEERING COMMITTEE If the overall cost baseline is affected, the variance is documented and reported to the Project Director and, subsequently, the Construction of Scrap Tire Recycling Plant Executive Steering Committee. The Project Director and the Construction of Scrap Tire Recycling Plant Executive Steering Committee review the rationale and discuss the options and mitigations for dealing with the variance, and determine if a re-plan, is necessary. If so, the issue and recommendation is presented to the Construction of Scrap Tire Recycling Plant Executive Committee for review and approval. The Construction of Scrap Tire Recycling Plant Executive Steering Committee makes the policy decision to amend the projects’ cost, scope, schedule, or quality. 3. COST RE-PLANNING If the Construction of Scrap Tire Recycling Plant Executive Steering Committee deems a re-plan necessary, the project prepares documents to address the re-plan. 4. COST RE-BASELINING Once the re-plan is approved, the Project Manager works with the Project Financial Manager to re-baseline the cost data and estimates based on the approved funding. The project works with the OSI Accounting Office to adjust their encumbrances and accounting tools to reflect the re- plan. 5. COST CLOSEOUT At the end of the project, the cost historical information is completed by the Project Financial Manager, reviewed by the Project Manager and, submitted to Office of systems Integration (OSI) Budget Office for review. Typically the change control process follows the project change control process. If there are special requirements for the cost change control process, they should be detailed in this section. The cost change control process will follow the established project change request process. The project sponsor must approve approvals for project budget/cost changes. PROJECT BUDGET The budget for this project is detailed below. Costs for this project are presented in various categories:
  9. 9. Cost Management Plan Template Construction of scrap Tire Recycling Plant 8 Overall Budget $5, 000,000 Land procurement and documentation $50,000 Architectural Development 1. Survey $50,000 2. Designing $50,000 3. Aesthetic Designing $50,000 Construction 1. Superstructure $500,000 2. Substructure 1 $250,000 3. Substructure 2 $250,000 4. Materials $2,000,000 5. Aesthetics $100,000 6. Machine Procurement $100,000 Project Closeout 1. Inspection $50,000 2. Clean-up $50,000 Construction Administration $500,000 Contingency Surplus $980,000 Total Project Cost $4,980,000

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