1. COST MANAGEMENT PLAN
CONSTRUCTION OF SCRAP TIRE RECYCLING PLANT
VERSION 1.0
DATE
04/08/2013

2. Cost Management Plan Template
Construction of scrap Tire Recycling Plant
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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

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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.

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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

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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.

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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)

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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.

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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:

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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