Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

PMP_Project Cost Management

3,050 views

Published on

Project Management Professional (PMBOK® 5th edition) training course

Published in: Leadership & Management
  • See how I make over $7,293 a month from home doing REAL online jobs! ◆◆◆ http://ishbv.com/ezpayjobs/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Here's How YOU Can Stake Out Your Personal Claim In Our EIGHT MILLION DOLLAR GOLDMINE... ●●● http://t.cn/AieXAuZz
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • How we discovered the real reason nice guys don't get laid, and a simple "fix" that allows you to gain the upper hand with a girl... without changing your personality or pretending to be someone you're not. learn more... ▲▲▲ http://scamcb.com/unlockher/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • My special guest's 3-Step "No Product Funnel" can be duplicated to start earning a significant income online. ★★★ http://ishbv.com/j1r2c/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Legitimate jobs paying $40/h Tap into the booming online job, industry and start working now! ◆◆◆ http://scamcb.com/ezpayjobs/pdf
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here

PMP_Project Cost Management

  1. 1. PPROJECTROJECT CCOSTOST MMANAGEMENTANAGEMENTPPROJECTROJECT CCOSTOST MMANAGEMENTANAGEMENT February 2016 Hisham Haridy, PMP, PMI-RMP
  2. 2. C MCost Management “The processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget” Plan Cost Estimate Determine Control Management Costs Budget Costs Process of developing an Aggregating the estimated cost of Influencing the factors that create Process involves identifying how you p g approximation (estimate) for the cost of the resources necessary to l h estimated cost of individual activities or work package to establish a cost baseline for measuring project performance. cost variance and controlling changes to the project budget (manage the actual changes h d h y g y are going to plan, manage, and control project costs. PROJECT COST MANAGEMENT February 2016 complete the project activities. project performance. when and as they occur).
  3. 3. DEFINATIONSDEFINATIONS Life Cycle Costing  The total cost to the organization for the ownership and acquisition of the product i f ll lif lover its full life cycle.  This is the concept of life cycle costing-looking at the cost of the whole life of the product, NOT just the cost of the project.  Life-cycle cost include construction costs, operational and maintenance costs, taxes, financing, replacement and renovation. Value Analysis  This concept is sometimes referred to as value engineering in the real world.  It involves finding a less costly way to do the same work It involves finding a less costly way to do the same work.  Value analysis requires the systematic use of techniques to identify the required project functions, assign values to these functions, and provide functions at the lowest overall cost without loss of performance. PROJECT COST MANAGEMENT February 2016
  4. 4. DEFINITIONSDEFINITIONS Variable Fixed Types of Cost These costs change with the amount of production or the amount of work. Examples include the cost of Costs do not change as production changes. Examples include set-up,p material, supplies, and wages. p p, rental, etc. Direct Indirectect d ect These costs are directly attributable to the work on the project. Indirect costs are overhead items or costs incurred for the Examples are team travel, team wages, recognition, and costs of material used on the project. benefit of more than one project. Examples include taxes, benefits, and janitorial services. PROJECT COST MANAGEMENT February 2016
  5. 5. DEFINITIONSDEFINITIONS Cost Price Cost and Price Cost Estimating is the determination of approximately how much will it cost the performing organization to provide the Pricing is a business decision that determines how much to charge for the product or serviceperforming organization to provide the product or service involved the product or service Price = Cost + Profit Direct cost + Indirect cost + Overhead PROJECT COST MANAGEMENT February 2016
  6. 6. DEFINITIONSDEFINITIONS Break –Even Analysis PROJECT COST MANAGEMENT February 2016
  7. 7. CPlan Cost Management “The process that establishes the policies procedures and documentation for Tools and The process that establishes the policies, procedures, and documentation for planning, managing, expending, and controlling project costs. Inputs Tools and Techniques Outputs 1. Project management plan 2 P j t h t 1. Expert judgment 2 A l ti l t h i 1. Cost management plan 2. Project charter 3. Enterprise environmental factors 4. Organizational process 2. Analytical techniques 3. Meetings assets The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project. PROJECT COST MANAGEMENT February 2016
  8. 8. INPUTSINPUTS 1. Project Management Plan  Scope baseline  Schedule baseline  Other cost-related scheduling, risk, and communications decisions from the project management plan. 2. Project Charter  The project charter provides the summary budget from which the detailed project costs are developed.  The project charter also defines the project approval requirements that will influence the management of the project costs. PROJECT COST MANAGEMENT February 2016
  9. 9. INPUTSINPUTS 3. Enterprise Environmental Factors  Organizational culture and structure  Market conditions Market conditions  Published commercial information  Project management information system  Currency exchange rates for project costs sourced from more than one country. 4. Organizational Process Assets  Financial controls procedures  Hi t i l i f ti d l l d k l d b Historical information and lessons learned knowledge bases;  Financial databases  Existing formal and informal cost estimating and budgeting- related policies, procedures, and guidelines. PROJECT COST MANAGEMENT February 2016
  10. 10. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 1. Expert judgment  Guided by historical information, provides valuable insight b t th i t d i f ti f i i ilabout the environment and information from prior similar projects.  Expert judgment can also suggest whether to combine methods and how to reconcile differences between them. 2. Analytical techniques  D l i th t t l i l h i t t i ti t Developing the cost management plan may involve choosing strategic options to fund the project such as: self-funding, funding with equity, or funding with debt.  The cost management plan may also detail ways to finance project resources such as making, purchasing, renting, or leasing.  Techniques may include: payback period, return on investment, internal rate of return, discounted cash flow, and net present value.o u , d s ou d s o , d p s u PROJECT COST MANAGEMENT February 2016
  11. 11. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 3. Meetings  Project teams may hold planning meetings to develop the cost management plan.  Att d Attendees:  Project manager  Project sponsor  Selected project team members  Selected stakeholders  Anyone with responsibility for Anyone with responsibility for project costs, and others as needed. PROJECT COST MANAGEMENT February 2016
  12. 12. OUTPUTSOUTPUTS 1. Cost Management Plan  It could be called “Budget Management Plan” or “Budget Plan”.  It can be formal or informal It can be formal or informal.  How you will manage costs.  The cost management processes and their associated tools and techniques are documented in the cost management plan.  The level of accuracy needed for estimates (level of accuracy)  Reporting format to be used.  The currencies that will be used.  Level of accuracy  Organizational procedures links  Control thresholds.  Rules of measuring cost performance.  Process descriptions.  Additional details. PROJECT COST MANAGEMENT February 2016
  13. 13. E CEstimate Costs “The process of developing an approximation of the monetary resources needed Inputs Tools and Techniques Outputs to complete project activities” 1. Cost management plan 2. Human resource management plan 3. Scope baseline 1. Expert judgment 2. Analogous estimating 3. Parametric estimating 4. Bottom-up estimating 1. Activity cost estimates 2. Basis of estimates 3. Project documents updates op 4. Project schedule 5. Risk register 6. Enterprise environmental factors o o p g 5. Three-point estimating 6. Reserve analysis 7. Cost of quality 8. Project management softwarefactors 7. Organizational process assets 8. Project management software 9. Vendor bid analysis 10.Group decision-making techniques The key benefit of this process is that it determines the amount of cost required to complete project work. PROJECT COST MANAGEMENT February 2016
  14. 14. INPUTSINPUTS 1. Cost management plan  It could be called “Budget Management Plan” or “Budget Plan”.  The method will be used level of accuracy required for estimates etc The method will be used, level of accuracy required for estimates,..etc.  How you will manage costs. 2. Human resource management plan  Lists the resources (including the quantity and their skills).  Labor rates, reward system, training,…etc. 3. Scope baseline  All the components of the scope baseline, including the project scope statement, WBS, and WBS dictionary. 4. Project schedule  It contains the activities, the type and quantity of resources needed to complete the work and when the work will occurthe work, and when the work will occur.  A schedule is needed before a budget. May be changed due to price conditions. PROJECT COST MANAGEMENT February 2016
  15. 15. INPUTSINPUTS 5. Risk register  Like rewards systems, risk management will save time and money, but there are t i t d ith th ff t t t l i kcosts associated with the efforts to control risks.  Risks are more properly thought of as both an input to the Estimate Costs process and an output. Planning is iterative. 6. Enterprise environmental factors  Company culture and existing systems.  marketplace conditions and commercial cost databases marketplace conditions and commercial cost databases.  While estimating, you might review the different countries from which supplies might be procured and at what costs. 7. Organizational process assets  Policies on estimating, templates, processes, procedures, lessons learned, and historical information .historical information . PROJECT COST MANAGEMENT February 2016
  16. 16. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 1. Expert judgment  Cost estimates are influenced by numerous variables such as labor rates, material t i fl ti i k f t d th i blcosts, inflation, risk factors, and other variables.  Expert judgment, guided by historical information, provides valuable insight about the environment and information from prior similar projects.  Expert judgment can also be used to determine whether to combine methods of estimating and how to reconcile differences between them.  Available from many sources: Available from many sources:  Other business units within organization  Consultants  Stakeholders  Professional and technical associations.  Industry groups. PROJECT COST MANAGEMENT February 2016
  17. 17. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 2. Analogous estimating (Top – Down Estimating) or Order of magnitude  When estimating costs, this technique relies on the actual cost of previous, i il j t th b i f ti ti th t f th t j tsimilar projects as the basis for estimating the cost of the current project.  It is a gross value estimating approach (total cost), sometimes adjusted for known differences in project complexity.  Analogous estimating is a form of expert judgment.  There is a limited amount of detailed information about the project (in early project phases). Then review the estimate when more details become available.project phases). Then review the estimate when more details become available.  Quick but less accurate.  Gives the project management an idea of the level of management’s expectations.  D t t k i t t th diff b t j t Does not take into account the differences between projects.  Extremely difficult for projects with uncertainty. PROJECT COST MANAGEMENT February 2016
  18. 18. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 3. Parametric estimating  Using project characteristics (or parameters) in a mathematical model to predict costs.  On other word parametric estimating uses a statistical relationship between historical data and other variables.  More accurate but takes time and expense to do this form of estimating.  Provides a basis for monitoring and controlling, performance measurement and management.  Gains buy-in from the team because the team creates estimates they can live withwith.  Requires that the project be defined and well understood before work begins.  Example; price per square meter.p ; p p q PROJECT COST MANAGEMENT February 2016
  19. 19. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 4. Bottom-up estimating  Detailed estimating is done for each activity (if available) or work package (if activities are not defined), and the estimates are then rolled up into control accounts and finally into an overall project estimate.  To do this well requires an accurate WBS.q 5. Three-point estimates (Probabilistic Estimate) Weighted Average  The accuracy of activity duration estimates can be improved by considering estimation uncertainty and risk. This concept originated with the Program Evaluation and Review Technique (PERT).  PERT uses three estimates to define an approximate range for an activity’s duration:  O = Optimistic  P Pessimistic P = Pessimistic  M = Most likely PROJECT COST MANAGEMENT February 2016
  20. 20. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES  The final cost estimate could be calculated based on an average of the three estimates, or by using a formula. EC= O + 4M + P 6 S.D. = P – O 6 V = ((P – O)/6)2  EC = Estimated Cost  S.D. = Standard Deviation.  V = Variance.  Final Cost Estimate (FCE) = EC +/- S.D. PROJECT COST MANAGEMENT February 2016
  21. 21. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 6. Reserve analysis  In risk analysis, you identify which activities on your project have significant risks and determine how much time and money to set aside to deal with the risks if they happen.  Risk contingency reserves are used for the specifically identified risks (knowng y p y ( risks), and a lump sum management reserve is used to accommodate unidentified risks (unknown risks). The work should include making sure individual activity estimates are not paddedactivity estimates are not padded. 7. Cost of quality  The cost of work added to the project to accommodate quality planning should be The cost of work added to the project to accommodate quality planning should be added to the project estimate. PROJECT COST MANAGEMENT February 2016
  22. 22. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 8. Project management estimating software  The software referred to here might be any software used for estimating.  If a project has hundreds or thousands of activities, each of which has similar cost components added like overhead, software can speed up the calculations. 9 Vendor bid analysis9. Vendor bid analysis  This work might also involve getting pricing from consultants, vendors, and suppliers.  Work provided by sellers may also require bid analysis.  Analysis of what the project should cost, based on the responsive bids from qualified vendors.  Further cost estimating may then be necessary before finalizing agreement. PROJECT COST MANAGEMENT February 2016
  23. 23. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 10. Group decision-making techniques  Team-based approaches, such as brainstorming, the Delphi or nominal group techniques. PROJECT COST MANAGEMENT February 2016
  24. 24. OUTPUTSOUTPUTS 1. Activity cost estimates  Activity cost estimates are quantitative assessments of the probable costs required to complete project work. Cost estimates can be presented in summary form or in detail. 2. Basis of estimates  Supporting detail for activity cost estimates may include:  Documentation of the basis of the estimate (i.e., how it was developed),  D i f ll i d Documentation of all assumptions made,  Documentation of any known constraints,  Indication of the range of possible estimates (e.g., $10,000 (±10%) to indicate that the item is expected to cost between a range of values)that the item is expected to cost between a range of values),  Indication of the confidence level of the final estimate. 3. Project document updates  The risk register PROJECT COST MANAGEMENT February 2016
  25. 25. OUTPUTSOUTPUTS Rough Order of Magnitude (ROM) Estimate  Thi t f ti t i ll d d i th i iti ti Degree of Accuracy  This type of estimate is usually made during the initiating process.  A typical range for ROM estimates is +/-50 percent or -25% to +75% from actual. Budget Estimate  This type of estimate is usually made during the planning phase and is in the range of -10 to +25 percent from actual. Definitive Estimate  L t d i th j t ( b d i l i h ) th ti t ill Later during the project (may be during planning phase), the estimate will become more refined.  Some project managers use the range of +/- 10 percent from actual, while others use -5 to +10 percent from actual. PROJECT COST MANAGEMENT February 2016
  26. 26. D BDetermine Budget “The process of aggregating the estimated costs of individual activities or work Inputs Tools and Techniques Outputs packages to establish an authorized cost baseline” 1. Cost management plan 2. Scope baseline 3. Activity cost estimates 1. Cost aggregation 2. Reserve analysis 3. Expert judgment 1. Cost baseline 2. Project funding requirements 4. Basis of estimates 5. Project schedule 6. Resource calendars 7. Risk register 4. Historical relationships 5. Funding limit reconciliation 3. Project document updates s eg ste 8. Agreements 9. Organizational process assets The key benefit of this process is that it determines the cost baseline against which projectThe key benefit of this process is that it determines the cost baseline against which project performance can be monitored and controlled. PROJECT COST MANAGEMENT February 2016
  27. 27. INPUTSINPUTS 1. Cost management plan  It could be called “Budget Management Plan” or “Budget Plan”.  How you will manage costs.y g 2. Scope baseline  Scope statement.  Work breakdown structure.  WBs dictionary. 3. Activity cost estimates3. Activity cost estimates  Cost estimates for each activity within a work package are aggregated to obtain a cost estimate for each work package. 4. Basis of estimates  Supporting detail for cost estimates should be specified.  Any basic assumptions dealing with the inclusion or exclusion of indirect costs in the project budget are specified in the basis of estimates. PROJECT COST MANAGEMENT February 2016
  28. 28. INPUTSINPUTS 5. Project schedule  The information in project schedule that can be used to aggregate costs to the calendar periods in which the costs are planned to be incurred.p p 6. Resource calendars  Resource calendars provide information on which resources are assigned to the project and when they are assigned.  This information can be used to indicate resource costs over the duration of the project. 7. Risk register  The risk register should be reviewed to consider how to aggregate the risk tresponse costs.  Updates to the risk register are included with project document updates. PROJECT COST MANAGEMENT February 2016
  29. 29. INPUTSINPUTS 8. Agreements  A procurement agreement includes terms and conditions, and may incorporate other items that the buyer specifies regarding what the seller is to perform ory p g g p provide.  It can also be called an understanding, a contract, a subcontract, or a purchase orderorder. 9. Organizational process assets  Existing formal and informal cost budgeting-related policies, procedures, and guidelines,  Cost budgeting tools, and  Reporting methods Reporting methods. PROJECT COST MANAGEMENT February 2016
  30. 30. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 1. Cost aggregation  To create a budget, activity costs, including costs for risk contingencies, are rolled up to work package costs.  Work package costs are then rolled up to control account costs and finally into project costs. PROJECT COST MANAGEMENT February 2016
  31. 31. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 2. Reserve analysis  Budget reserve analysis can establish both the contingency reserves and the management reserves for the projectmanagement reserves for the project. Contingency reserves Management reserves are to address the cost impacts of the risks remaining during risk response planning. are any extra funds to be set aside to cover unforeseen risks or changes to the projectproject. Cost Baseline (1) = Cost estimate + Contingenc Cost Budget(2) = Cost Baseline + Management Rese eContingency. Management Reserve. (1) Represents the funds authorized for the (2) How much money the company should project manager to manage and control. have available for the project. PROJECT COST MANAGEMENT February 2016
  32. 32. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 3. Expert judgment  Available from many sources: Available from many sources:  Other business units within organization  Consultants Consultants  Stakeholders  Professional and technical associations Professional and technical associations.  Industry groups. 4 Historical relationships4. Historical relationships  After the cost baseline and cost budget are completed, many estimators will compare these numbers to parametric estimates, expert judgment, or historical relationships in order to do a sanity check. PROJECT COST MANAGEMENT February 2016
  33. 33. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES  Both the cost and accuracy of analogous and parametric models can vary widely. They are most likely to be reliable when:  Historical information used to develop the model is accurate Historical information used to develop the model is accurate,  Parameters used in the model are readily quantifiable, and  Models are scalable, such that they work for a large project, a small project, and phases of a project. 5. Funding limit reconciliation  The expenditure of funds should be reconciled with any funding limits on the The expenditure of funds should be reconciled with any funding limits on the commitment of funds for the project.  A variance between the funding limits and the planned expenditures will sometimes necessitate the rescheduling of work to level out the rate of expenditures.  This can be accomplished by placing imposed date constraints for work into the This can be accomplished by placing imposed date constraints for work into the project schedule. PROJECT COST MANAGEMENT February 2016
  34. 34. OUTPUTSOUTPUTS 1. Cost baseline  The approved version of the time-phased project budget, excluding any management reserves,  It can only be changed through formal change control procedures and is used as a basis for comparison to actual results.p  It is developed as a summation of the approved budgets by time period and is typically displayed in the form of an S-curve.  In the earned value management technique the cost performance baseline is referred to as the performance measurement baseline (PMB).measurement baseline (PMB). PROJECT COST MANAGEMENT February 2016
  35. 35. OUTPUTSOUTPUTS 2. Project funding requirements  Total funding requirements and periodic funding requirements (e.g., quarterly, annually) are derived from the cost baseline.  The cost baseline will include projected expenditures plus anticipated liabilities.  Funding often occurs in Funding often occurs in incremental amounts that are not continuous, which appear as steps.  The total funds required = cost baseline + management reservesbaseline + management reserves 3. Project document updates  Project documents that may be updated include but are not limited to: Risk register, Cost estimates, and Project schedule. PROJECT COST MANAGEMENT February 2016
  36. 36. C CControl Costs “The process of monitoring the status of the project to update the project budget Inputs Tools and Techniques Outputs and managing changes to the cost baseline” 1. Project management plan 2. Project funding requirements 1. Earned Value Management 2. Forecasting 3. To-complete performance 1. Work performance information 2. Budget forecasts 3. Work performance data 4. Organizational process assets index (TCPI) 4. Performance reviews 5. Project management software 6 Reserve analysis 3. Change requests 4. Project management plan updates 5 Project document updates6. Reserve analysis 5. Project document updates 6. Organizational process assets updates The key benefit of this process is that it provides the means to recognize variance from the plan ine ey be e t o t s p ocess s t at t p o des t e ea s to ecog e a a ce o t e p a order to take corrective action and minimize risk. PROJECT COST MANAGEMENT February 2016
  37. 37. INPUTSINPUTS 1. Project management plan  The project management plan contains the following information that is used to control cost:control cost:  Cost Performance baseline.  Cost management plan. 2. Project funding requirements  Total funding requirements and periodic funding requirements (e.g., quarterly, annually) are derived from the cost baselineannually) are derived from the cost baseline. 3. Work performance information  Work performance information includes information about project progress, such as which deliverables have started, their progress and which deliverables have finished.  Information also includes costs that have been authorized and incurred and Information also includes costs that have been authorized and incurred, and estimates for completing project work. PROJECT COST MANAGEMENT February 2016
  38. 38. INPUTSINPUTS 4. Organizational process assets  The organizational process assets that can influence the Control Costs process l d b l dinclude, but are not limited to:  Existing formal and informal cost control-related policies, procedures, and guidelines;  Cost control tools; and  Monitoring and reporting methods to be used. PROJECT COST MANAGEMENT February 2016
  39. 39. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 1. Earned value management  A management methodology for integrating scope, schedule, andg gy g g p , , resources/Cost, and for objectively measuring project performance and progress.p g  Performance is measured by determining the budgeted cost of work performed (i.e., earnedg p ( , value) and comparing it to the actual cost of work performed (i.e., actual cost).p ( , )  Progress is measured by comparing the earned value to the planned value.earned value to the planned value. PROJECT COST MANAGEMENT February 2016
  40. 40. Analysis EAC BAC Target Cost Analysis VAC ETC CV Project st Target Cost ETC AC PV CV SV slippage Cos EV DataDate Schedule slippage Old Acronym Old Term New Acronym New Term BCWS Budgeted Cost of Work Scheduled PV Planned value C d d C f k f d d l Time BCWP Budgeted Cost of Work Performed EV Earned value ACWP Actual Cost of Work Performed AC Actual value PROJECT COST MANAGEMENT February 2016
  41. 41. Acronym Terms Interpretation Terms PV Planned Value The estimated value of the work planned to be done. EV Earned Value The estimated value of the work actually accomplished. AC Actual Cost The actual cost incurred for the work accomplished. BAC Budget at Completion The BUDGET for the TOTAL project effort. EAC Estimate at Completion The expected TOTAL project to cost (forecast). ETC Estimate to Completion Currently, the expected cost to finish the project (forecast)ETC Estimate to Completion Currently, the expected cost to finish the project (forecast) VAC Variance at Completion Currently, the expected variance to be at the end of the project. PROJECT COST MANAGEMENT February 2016
  42. 42. Formulas -ve Behind Schedule  Schedule Variance (SV) -ve Over budget  Cost Variance (CV) SV = EV - PV ve Behind Schedule +ve Ahead schedule  Cost Performance Index (CPI) CV = EV - AC -ve Over budget +ve Under budget CPI = EV = Earned Value  1 Over budget AC Actual 1 Under budget  Cost Performance Index (CPI) SPI = EV = Earned Value  1 Behind Schedule  Schedule Performance Index (SPI) SPI = = PV Budget 1 Ahead Schedule PROJECT COST MANAGEMENT February 2016
  43. 43. Analysis SV Under budget A head of schedule Over budget A head of schedule + Best Case SV CV Over budget Behind schedule Under budget Behind schedule +- - Worst Case PROJECT COST MANAGEMENT February 2016
  44. 44. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 2. Forecasting  Estimated at Completion (EAC); There are three scenarios i A th t k f ifi i t f d ill t l d ti. Assumes that work from a specific point forward will progress at planned rates where or not these rates have prevailed to this point. EAC = AC + (BAC – EV) ii. Assumed that the rate of progress to date will continue to prevail. ( ) iii Uses current project status and tender for forecasting (SPI and CPI) EAC = BAC CPI iii. Uses current project status and tender for forecasting (SPI and CPI) EAC = AC + ETC (Estimated to complete) (BAC – EV)( ) CPI X SPI PROJECT COST MANAGEMENT February 2016
  45. 45. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES  Variance at Completion (VAC);  Estimate to Complete (ETC); VAC = BAC - EAC ETC = EAC - AC PROJECT COST MANAGEMENT February 2016
  46. 46. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 3. To-complete performance index (TCPI)  In order to stay within budget, what rate must we meet for the i i k?remaining work?  It is the calculated projection of cost performance that must be achieved on the remaining work to meet a specified management goal, such as the BAC or the EAC.  Equation for the TCPI based on the BAC:  Equation for the TCPI based on the EAC: = (BAC – EV) work remaining (BAC – AC) Funds remaining q = (BAC – EV) work remaining (EAC – AC) Funds remaining PROJECT COST MANAGEMENT February 2016
  47. 47. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES PROJECT COST MANAGEMENT February 2016
  48. 48. TOOLS AND TECHNIQUESTOOLS AND TECHNIQUES 4. Performance reviews  If EVM is being used, the following information is determined:  Variance analysis.  Trend analysis.  Earned value performance. Earned value performance. 5. Project management software  Project management software is often used to monitor the three EVM dimensions (PV, EV, and AC), to display graphical trends, and to forecast a range of possible final project results. 6 Reserve analysis6. Reserve analysis  Reserve analysis is used to monitor the status of contingency and management reserves for the project to determine if these reserves are still needed or if additional reserves need to be requested. PROJECT COST MANAGEMENT February 2016
  49. 49. ExampleExample Activities 1 2 3 4 5 6 7 Budget  CostCost A 2,000 2,000 4,000 B 2,000 2,000 2,000 6,000, , , , C 2,000 2,000 2,000 6,000 D 1,500 1,500 3,000 E 500 500 1,000 Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000 cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000 PROJECT COST MANAGEMENT February 2016
  50. 50. ExampleExample Activities 1 2 3 4 5 6 7 %  of  Completion A 2,000 2,000 100% B 2,000 2,000 2,000 16.5% C 2,000 2,000 2,000 25% D 1,500 1,500 0 E 500 500 0 Cost/month 2,000 2,000 2,000 4,000 5,500 4000 500 20,000 Cumulative 2 000 4 000 6 000 10 000 15 500 19 500 20 000Cumulative 2,000 4,000 6,000 10,000 15,500 19,500 20,000 Cutoff date PROJECT COST MANAGEMENT February 2016
  51. 51. ExampleExample Activities Perform Work Budget Cost EV (BCWP) Actual CostWork Cost (BCWP) Cost A 100% 4,000 4,000 4,500 B 16.5% 6,000 1,000 1,500 C 25% 6,000 1,500 1,000 D 0 % 3,000 0 0 E 0% 1,000 0 0E 0% 1,000 0 0 20,000 6,500 7,000 PV EV AC 6,000 6,500 7,000 PROJECT COST MANAGEMENT February 2016
  52. 52. ExampleExample Analysis SV 6 500 6 000 500 Ah d f S h d l  Schedule Variance (SV)  Cost Variance (CV) SV = 6,500 - 6,000 = 500 Ahead of Schedule CV = 6,500 - 7,000 = - 500 Over budget SPI = 6,500 = 1.08 Ahead of Schedule 6,000  Schedule Performance Index (SPI)  Cost Performance Index (CPI) CPI 6,500 0 93 O b d tCPI = = 0.93 Over budget 7,000 PROJECT COST MANAGEMENT February 2016
  53. 53. ExampleExample Analysis SV Under budget A head of schedule + SV Over budget A head of schedule CV Over budget Behind schedule +- Under budget Behind schedule - PROJECT COST MANAGEMENT February 2016
  54. 54. ExampleExample 2. Forecasting  Estimated at Completion (EAC); EAC = 7,000 + (20,000 – 6,500) = 20,500 20 000 EAC = 20,000 = 21,505 0.93 EAC = 7,000 + 13,441 = 20,441EAC 7,000 + 13,441 20,441  Variance at Completion (VAC); VAC = 20,000 - 21,505 = - 1,505  Estimate to Complete (ETC); ETC = 21,505 - 7,000 = 14,505 PROJECT COST MANAGEMENT February 2016
  55. 55. ExampleExample  Equation for the TCPI based on the BAC: TCPI = (13,500) work remaining = 1.04 (13 000) Funds remaining  Equation for the TCPI based on the EAC: (13,000) Funds remaining (13 500) work remaining TCPI = (13,500) work remaining = 0.93 (14,505) Funds remaining + 1.00 + TCPI (BAC) Status  Date Baseline plan 1.00 TCPI‐ TCPI (EAC) PROJECT COST MANAGEMENT February 2016
  56. 56. OUTPUTSOUTPUTS 1. Work performance information  The calculated CV, SV, CPI, and SPI values for WBS components, in particular the k k d t l t d t d d i t d twork packages and control accounts, are documented and communicated to stakeholders. 2. Cost forecasts  Either a calculated EAC value or a bottom-up EAC value is documented and communicated to stakeholders. 3. Change requests  Analysis of project performance may result in a change request to the cost baseline or other components of the project management plan.baseline or other components of the project management plan. 4. Project management plan updates  Cost baseline.  Cost management plan PROJECT COST MANAGEMENT February 2016
  57. 57. RefreshmentsRefreshments Q1: One common way to compute estimate at completion (EAC) is to take the budget at completion (BAC) and: A. Divide by SPI. B. Multiply by SPI. C. Multiply by CPI. D. Divide by CPI. Q2: If earned value (EV) 350 actual cost (AC) 400 planned value (PV) 325 what isQ2: If earned value (EV) = 350, actual cost (AC) = 400, planned value (PV) = 325, what is cost variance (CV)? A. 350 B. -75 C. 400 D. -50 PROJECT COST MANAGEMENT February 2016
  58. 58. RefreshmentsRefreshments Q3: A project manager needs to analyze the project costs to find ways to decrease costs. It would be BEST if the project manager looks at: A. Variable costs and fixed costs. B. Fixed costs and indirect costs, C. Direct costs and variable costs. D. Indirect costs and direct costs. PROJECT COST MANAGEMENT February 2016
  59. 59. RefreshmentsRefreshments Q4: You provide a project cost estimate for the project to the project sponsor. He is unhappy with the estimate, because he thinks the price should be lower. He asks you to cut 15 percent off the project estimate. What should you do? A Start the project and constantly look for cost savingsA. Start the project and constantly look for cost savings. B. Tell all the team members to cut 15 percent from their estimates. C Inform the sponsor of the activities to be cutC. Inform the sponsor of the activities to be cut. D. Add additional resources with low hourly rates. PROJECT COST MANAGEMENT February 2016
  60. 60. RefreshmentsRefreshments Q5: Although the stakeholders thought there was enough money in the budget, halfway through the project the cost performance index (CPI) is 0.7. To determine the root cause, several stakeholders audit the project and discover the project cost budget was estimated analogously. Although the activity estimates add up to the project estimate, the stakeholders think something was missing in how the estimate was completed. Which of the following describes what was missing? A. Estimated costs should be used to measure CPI. B. SPI should be used, not CPI. C. Bottom-up estimating should have been used. D. Past history was not taken into account. PROJECT COST MANAGEMENT February 2016

×