04 project cost management

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04 project cost management

  1. 1. Session 4Project CostManagement
  2. 2. Agenda  Project Cost Management Overview  3 Processes  Estimate Costs  Determine Budget  Control CostsProject Cost Management 2
  3. 3. Goals  By the end of this session, you will be able to:  Have an overview of Project Cost Management;  Have a deep understanding of Inputs, T&Ts, and Outputs of the 3 processes in Project Cost Management;  Use EVM technique; Calculate PV, VE, AC, BAC, EAC, ETC, VAC, CV, SV, CPI, SPI, TCPI, etc.Project Cost Management 3
  4. 4. Copyright  Most of the material of this presentation has been taken from the PMBOK® Guide 4th Edition of PMI (Project Management Institute)  The material is for LARION Computing internal use only, NOT for reproduction or distribution.Project Cost Management 4
  5. 5. Progress  Project Cost Management Overview  3 Processes  Estimate Costs  Determine Budget  Control CostsProject Cost Management 5
  6. 6. Project Cost Management Overview  04 Project Cost Management Overview.pdfProject Cost Management 6
  7. 7. Progress  Project Cost Management Overview  3 Processes  Estimate Costs  Determine Budget  Control CostsProject Cost Management 7
  8. 8. 3 ProcessesProject Cost Management 8
  9. 9. Progress  Project Cost Management Overview  3 Processes  Estimate Costs  Determine Budget  Control CostsProject Cost Management 9
  10. 10. Estimate Costs (1 of 3)  Reserve analysis  Contingency reserves  Cost of quality  Cost of all of quality-related activities  Vendor bid analysis  Evaluating bids from external contractors and choose oneProject Cost Management 10
  11. 11. Estimate Costs (2 of 3)  Activity cost estimates  Direct & indirect costs???  Basis of estimates  Additional details supporting cost estimates  How cost estimate was derivedProject Cost Management 11
  12. 12. Estimate Costs (3 of 3)  Accuracy of estimates  Rough Order of Magnitude (ROM) estimate  +/- 50%  Budget estimate  -10% to +25%  Definitive estimate  +/- 10%Project Cost Management 12
  13. 13. Progress  Project Cost Management Overview  3 Processes  Estimate Costs  Determine Budget  Control CostsProject Cost Management 13
  14. 14. Determine Budget (1 of 4)  PProject Cost Management 14
  15. 15. Determine Budget (2 of 4)  Cost aggregation  Reserve analysis  Contingency reserves  Allowances for unplanned but potentially required changes  Related to risk  Management reserves  Budgets reserved for unplanned changes to project scope & cost  Not part of cost baseline  Not as part of EVM calculationsProject Cost Management 15
  16. 16. Determine Budget (3 of 4)  Historical relationships  Funding limit reconciliationProject Cost Management 16
  17. 17. Determine Budget (4 of 4)  Cost performance baseline & Project funding requirementsProject Cost Management 17
  18. 18. Progress  Project Cost Management Overview  3 Processes  Estimate Costs  Determine Budget  Control CostsProject Cost Management 18
  19. 19. Control Costs (1 of 14)  Earned Value Management  To measure project performance against the scope, schedule and cost baselines  The combination of scope, schedule and cost baselines is called performance measurement baselineProject Cost Management 19
  20. 20. Control Costs (2 of 14)  Earned Value Management (cont.)  PV, EV, ACProject Cost Management 20
  21. 21. Control Costs (3 of 14)  Earned Value Management (cont.)  Planned Value (PV)  The authorized budget assigned to the work to be accomplished for an activity or a WBS component  BCWS, Budgeted Cost of Work Scheduled, is another name of PV  Earned Value (EV)  The value of work performed (in term of approved budget)  BCWP, Budgeted Cost of Work Performed, is another name of EV  EV = BAC * % of physical progress  Actual Cost (AC)  The total cost actually incurred & recorded in accomplishing work performed  ACWP, Actual Cost of Work Performed, is another name of ACProject Cost Management 21
  22. 22. Control Costs (4 of 14)  Earned Value Management (cont.)  Variances from approved baselines  Schedule Variance (SV)  A measure of schedule performance on a project  SV = EV – PV  SV < 0 → behind schedule; >0 → ahead of schedule  Cost Variance (CV)  A measure of schedule performance on a project  CV = EV – AC  CV < 0 → over budget; >0 → under budgetProject Cost Management 22
  23. 23. Control Costs (5 of 14)  Earned Value Management (cont.)  Schedule Performance Index (SPI)  A measure of progress achieved compared to progress planned on a project  SPI = EV / PV  SPI < 1 → behind schedule; >1 → ahead of shcedule  Cost Performance Index (CPI)  A measure of the value of work completed compared to the actual cost or progress made on a project  CPI = EV / AC  CPI < 1 → over budget; >1 → under budgetProject Cost Management 23
  24. 24. Control Costs (6 of 14)  Earned Value Management (cont.)  Example: Over budget and behind scheduleProject Cost Management 24
  25. 25. Control Costs (7 of 14)  Earned Value Management (cont.)  Tips  If it is a variance: the formula is EV minus something  If it is an index: it is EV divided by something  If the formula relates to schedule: use PV  If the formula relates to cost: use ACProject Cost Management 25
  26. 26. Control Costs (8 of 14)  Earned Value Management (cont.)  Budget At Completion (BAC)  How much did we budget for the total project effort?Project Cost Management 26
  27. 27. Control Costs (9 of 14)  Forecasting  Estimate At Completion (EAC)  What do we currently expect the total project to cost?  Estimate To Complete (ETC)  How much more do we expect it to cost to finish the project?  Variance At Completion (VAC)  How much over or under budget do we expect to be at the end of the project?Project Cost Management 27
  28. 28. Control Costs (10 of 14)  Forecasting (cont.)  Estimate At Completion (EAC)  Initial estimates are flawed → re-estimate  EAC = AC + bottom-up ETC  Continue at the same rate of spending  EAC = BAC / CPI  Current variances are thought to be atypical of the future  EAC = AC + (BAC-EV)  Current variances are thought to be typical of the future  EAC = AC + (BAC-EV)/(CPI*SPI)Project Cost Management 28
  29. 29. Control Costs (11 of 14)  Forecasting (cont.)  Estimate To Complete (ETC)  ETC = EAC – AC  ETC = re-estimate  Variance At Completion (VAC)  VAC = BAC - EACProject Cost Management 29
  30. 30. Control Costs (12 of 14)  To Complete Performance Index (TCPI)  In order to stay within budget, what rate must we meet for the remaining work? (divides the work remaining to do by the money remaining to do it)  TCPI = (BAC-EV) / (BAC-AC)Project Cost Management 30
  31. 31. Control Costs (13 of 14)  EVM Exercise  04 Exercise 01.pdf, calculate:  PV, EV, AC  BAC  CV, CPI  SV, SPI  EAC, ETC, BAC  04 Exercise 02.pdfProject Cost Management 31
  32. 32. Control Costs (14 of 14)  Performance Reviews  Variance Analysis  Work performance measurements  Budget forecastsProject Cost Management 32
  33. 33. Recap  Project Cost Management  3 processesProject Cost Management 33
  34. 34. Questions?Project Cost Management 34
  35. 35. Thank you!Project Cost Management 35

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