Cost Control

Cost control is the last process area in project cost management. Cost control is concerned with influencing the factors that create changes to the cost baseline to ensure that changes are agreed upon, determining that the cost baseline has changed, managing the actual changes as they occur, recording all changes against the baseline, communicating changes to the stakeholders, and acting to bring cost overruns within acceptable project limits. Clearly, there must be a mechanism to make everyone involved in a cost change aware of the change and to ensure that everyone is in agreement that the change must occur. This is a key for effectively managing as a project manager. You should have documentation that the changes in costs have been agreed upon. However, some changes may be outside of your control. For instance, if you are doing a construction project that involves many vehicles and the price of gasoline rises precipitously, you do not need to go to anyone except to note that the prices have changed.

If a price change occurs, you need to document how much it was and when it occurred. This is part of showing people what cost changes have occurred. A great deal of this process involves getting information to stakeholders who are outlined in the communication plan. You should immediately notify the appropriate people when the cost baseline has changed.

Finally, you should act as quickly as possible to control the changes. The sponsor may allow certain levels of cost change to be accepted without requiring immediate communication. Usually, if this is true, there is a threshold for the changes that is often expressed as a percentage of the original baseline. For example, you may have consent from the sponsor to accept changes of no more than 5% from the original baseline without needing his or her written approval. No matter what the circumstances, your job is to react to changes and note them quickly. The changes that make major differences in the cost of the project are the ones that you must control first. Smaller changes are still important but are not as important as larger ones.

You should use cost control no matter whether the change is positive or negative. The job of the project manager is not to bring a project in under budget. His or her job is to bring the project in on budget. Being under budget can be just as problematic as being over budget. Project management deals with getting accurate plans and then executing them. As with other types of change control, such as scope change control and quality control, you should be able to explain why costs changed.

Q.	The project manager's job is to bring the project in ________ budget.
		A.	Over
		B.	Under
		C.	On
		D.	Close to

The answer is C. Your job as a project manager is to give accurate assessments of what the project will cost. Coming in below cost is not recommended because your cost estimating should give you a correct picture of the overall budget.

Q.	When a cost change occurs, be sure to document ________ and ________ it occurs.
		A.	How and where
		B.	Where and when
		C.	When and how
		D.	When and why

The answer is D. You should document when the cost changed occurred and as much as possible the reasons for its occurrence.

The inputs to cost control are the cost baseline, project funding requirements, performance reports, change requests, and the cost management plan. Cost baseline as a concept is covered in the cost budgeting section of this chapter. The performance reports for cost are treated the same as any of the other cost reports. What you are looking for is variance from the plan based on what has actually occurred. Variance management works as well as the information in the performance reports, so it is necessary to be certain of the accuracy of detail in the reports. The performance reports in cost control can also be used to alert project members about problems and issues that may surface in the future.

Change requests for cost control are much the same as change requests in scope control, quality control, or in fact any of the control areas of the nine knowledge areas. The change requests in cost control usually increase the budget. In some cases, you may actually decrease the budget, particularly if you are downsizing the project. Although change requests can come in non-permanent form such as oral requests, your job as project manager is to make certain that the changes are noted and put into a permanent part of the project file. No matter whether the requests come from someone who bumps into you in the hall or through a complex change request system, you should note all requests and what happens to them. Even if the request is turned down, make a note of it. It is possible that the same request will be resubmitted later, and you may want to look at how the change request was handled the first time it was submitted. This can often save a great deal of time.

Q.	Change requests should be noted ________ when they occur and become a part of the project record.
		A.	Often
		B.	Tactically
		C.	Permanently
		D.	Orally

The answer is C. You want to keep permanent records of every change made from the original approved plan. This is just as true in cost control as it is in any other type of control in a project.

The tool and techniques in cost control are the cost change control system, performance measurement, forecasting, performance reviews, project management software, and variance management. The cost change control system is actually just one part of the integrated control systems, and like all of the other change control systems, it outlines the procedures by which the cost baseline may be changed.

Performance measurement shows variations from the baseline planning. Earned value management is one of the types of performance measurement. This has been explained in detail in Chapter 4, "Execution and Control." Because there are usually four or five questions on earned value, it is a good idea to reread that section. Simply put, Earned Value Management is an accounting concept that is used only in projects. Earned Value Management matches the planned value (PV) against the earned value (EV) to determine how your project projections match what you predicted. The other acronym that you must know is actual cost (AC). It would be good to take a few minutes to reread the topic in Chapter 4.