Cost management process (CMP) generally refers to the cost analysis
portion of project management. It is a formalized activity where some
of the core downstream financial impacts of a project are systemically
identified, approved and paid.
During the planning stage of any project, a Financial Management Plan is developed as an estimate of costs. The cost management process starts during that phase, inclusive of any expenses incurred during the planning stage of the project itself. All labor and material costs incurred in the project planning phase must be the first expenses tracked in the CMP.
If some formal cost tracking is not used, it is impossible to determine if a project is staying within projected resource constraints, including time, expenditures, and overall quality performance.
The same core costs that drive expenditures in any business are the ones that must be tracked as part of the CMP. These fall into four basic buckets of costs:
CMP can include more than simple cash flows. Many companies include such other considerations as Risk Assessment and Management, and in the tracking of U.S. government projects, may by contractual requirement include Earned Value Analysis. Earned Value Analysis is monitoring the expenditures against set milestones.
Often, the cost tracking required by the Cost Management Process is a natural extension of the company’s normal accounting systems, augmented by a manual tracking system or special accounting codes.
The three key documents required for cost tracking include:
Document expense forms include such records of transaction as Invoices, Bills of Lading, or Account Statements from vendors. It also includes such labor tracking devices as time cards and consultant fee billing.
Approve expense forms are whatever approval methods a company uses to comply with local regulations regarding financial accountability. In the United States, Sarbanes-Oxley Act of 2002 provides guidelines of minimal approval and accountability process in a business environment. Generally accepted principals require: coding, approval, and review.
Finally, the accounting group must register the expense in whatever accounting tool are used to track company expenses against cash flows. Two accounting methods can be used, either cash or accrual method. These can be entered using general ledger methods.
For any project manager, it is critical to implement a cost management process to ensure accountability and be able to demonstrate the success or failure of a given endeavor. The tools to do so are not complicated in a business following sound accounting processes as part of their daily operations.
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