Question

Discuss in detail what should a project manager do to prepare cost baseline.

Answer 1

Project management includes various responsibilities within one’s team in order to achieve maximum results for the organization. In regards to money and remaining in business, providing a budget with a time phased plan is considered as a cost baseline.The cost baseline describes the basis for the earned value reporting system. It is defined as a budget for the estimated cost of the project spread over different time periods of the project. Cost baseline is used as an example in which the performance of the cost is measured and monitored to evaluate the importance of project. The cost baseline is created by thr project managers by estimating the costs by the particular period in which the project would be completed. This cost estimation is usually graphed and illustrated on a S-curve.

In order to create the cost of the project and complete the project plans, it is critical for the project managers to do a bottom-up, definitive and detailed cost estimate for all the tasks and activities of the project. The cost of all of the planned tasks and activities spread over time is the operational budget, sometimes also known as the performance budget. Some care needs to be taken by the project managers when planning the cost baseline. Because cost baseline is the basis for organization's performance measurement system, project managers need to be careful that the budget is illustrated on the cost baseline at the same point in time where the managers expect the actual cost to occur. This can, sometimes, be quite a problem for the project managers. Suppose the project managers want to show the budgeted expenditure for an item the company is purchasing on a particular date, say July 15. For the project management planners, this is the date that the project team completes all the tasks and work that will make the purchase take place. In other words, the project managers decides what needs to purchase and issue a purchase requisition to the purchasing department of the company to actually purchase it. The actual expenditure, the time when the organization actually issues a check to the company supplying the items to the project team, might be a few months later. Because of this time delay, the actual cost will be remain below the budgeted cost for those few months. This will, obviously, have the effect of making the performance reports look better than they actually are. If there are too many delays in the reporting of actual project cost, the entire project might look much better than it actually is. But of course, sooner or later the actual costs will be shown and then the performance of the project suddenly falls.

A cost baseline is essentially an critical factor in the project management plan that organizations use to ensure success. Most projects, mostly the larger ones, have a variety of baselines that needs be calculated. Some of these cost baselines include production variations as well as resource baselines. These performance measurements of the projects ensure that cost is evaluated in regards to the overall yield of a particular project. This process is mostly used in successful companies who work on projects that will serve a service to their futures.