Estimating Supplier Cost and Involvement

Cost control is concerned with several things, which include influencing the factors that create changes to the baseline; determining changes to the baseline and managing such changes. Cost control is therefore, not a stand alone process but rather one of the many processes including for instance scope and time, which deal with integrated project control. (Hamilton, 134)

When configuring a Cost Planning Map (CPLM) one should start with pertinent questions like what is the cost planner: that what is the perspective of the planner for instance, whether the planner is the owner of the of the project or if he is a contractor and also whether the planner is experienced or just a novice. The approach of CPLM will greatly depend on the perspective, experience and organizational culture in which the planner plans. (Dragan, 228) The other question is what the cost of the plan is.

This regards the project cost plan typically include a cost estimate and a cost baseline (Time-phased Budget). In terms of the estimate, it is an assessment based on specific facts and assumptions of the final cost of the project. This assessment and its results will heavily hinge on factors such as the accuracy of scope, quality of available estimating data, stage of the project, time allowed for the estimate, estimator’s perspective and experience, desired accuracy and available estimating tools.

Consequently, by defining these factors, one can define the makeup of your Cost Planning Map. (Dragan, 228) Once you have defined cost planning, you need to determine for what purpose you want to use the cost plan. He proposes three available uses: to asses the capital cost, to establish a baseline, and to evaluate risk and productivity. As an assessment tool, a cost plan can act as a basis for a proposal, bid, or contact document. Still in other situations, cost estimate, a part of a cost plan, is compared with other cost plan to validate their accuracy and increase the confidence level.

Typically, this type of estimate is referred to as an independent cost estimate or in some companies’ parlance – a shadow estimate. (Dragan, 228) The second capability of a cost plan and also the second sub-step in this step is to help establish two baseline – a schedule and cost baseline. One of the crucial parts of developing a cost estimate is identifying necessary to complete project activities. This is performed hand in hand with scheduling so that the resource hours of efforts may be turned into activity duration, thus setting a schedule baseline.

By combining the scheduled activities with their budgets, you can develop a Cost Baseline, also as Time- Phased Budget or cash flow curve. (Dragan, 228) The third sub-step is evaluating risks; it aims at establishing a reasonable amount of cost estimate to allow for changes that are likely to occur. This amount, called contingency, practically reflects projects risks in the cost plan. The motivation for careful analysis of risk and subsequent identification of the contingency amount is usually driven by attempt to lower costs as much as possible.

Risks may be related to any technical, schedule and cost uncertainties in work packages. Once cost planning has been defined and the purpose of the cost plan selected, the stage is set for the next step to decide what will be the cost plan. (Dragan, 228) Designing Cost Planning Process is used to develop an estimate and related cost baseline. It is begun by a pre-plan of how one intends to perform cost planning. Several specific items are the focus of the pre-planning.

First is thinking through who the end users of estimates are and with what purpose may help you select appropriate estimating format and forms. (Dragon, 230) From the discourse, the estimation of cost and control of logistics is imperative in the wholesale process of planning and executing a project. Every management is confronted with the need to spurn its organization to the next level of prosperity. Therefore there is a constant need for planning for these goals which are implemented through project.

Any management worth its salt, shouldn’t not ignore the fact that every logistics in the planned project will call for funding and this funding need to be controlled for them to be used effectively. This leaves us with the conclusion that that the estimation of costs and the subsequent control of logistics in is indispensable to any management.

Reference

James P. Lewis, (2005) Project Planning, Scheduling and Control: A Hands-on Guide, 259. Albert Hamilton, (2001) Managing Projects for Successful: A Trilogy, 628. Dragan Z. Milosevic, (2003) Project Management Toolbox, 229. R Marshall Engelbeck, (2002) Acquisition Management, 65.