Session 9 4th edition PMP

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Session 9 4th edition PMP

  1. 1. Project Co$t Management
  2. 2. Project Co$t Management Knowledge Area Process Initiating Planning Executing Monitoring & Control Closing Cost Cost Estimating Cost Budgeting Cost Control Enter phase/ Start project Exit phase/ End project Initiating Processes Closing Processes Planning Processes Executing Processes Monitoring & Controlling Processes
  3. 3. • The process involved in estimating, budgeting, and controlling cost so that the project can be completed within approved budget • Value analysis (value engineering) – Looking at less costly way to do the same work within the same scope Project Cost Management Life cycle costing Looking at the cost of whole life of the product (include maintenance)
  4. 4. cost management plan - Level of accuracy (e.g., $100, $1,000), based on the scope of the activities and magnitude of the project, and may include an amount for contingencies. -Units of measure (e.g. staff hours, staff days, weeks) -Reporting Format -Rules of performance measurement. (Earned Value Management rule)
  5. 5. • Types of Cost • Variable Costs – Change with the amount of production/work – e.g. material, supplies, wages • Fixed Costs – Do not change as production change – e.g. set-up, rental
  6. 6. • Direct Costs – Directly attributable to the work of project – e.g. team travel, recognition, team wages • Indirect Costs – overhead or cost incurred for benefit of more than one project – e.g. taxes, fringe benefit, janitorial services
  7. 7. • Quality/Accuracy of Cost Estimation • Most difficult to estimate as very little project info is available, made during initiating process Estimate Accuracy Rough Order of Magnitude (ROM) +/- 50% Budget Estimate -10% +25% Definitive Estimate -5% 10% • Used to finalize the Request for Authorization (RFA), and establish commitment, made during planning phase • During the project and refined
  8. 8. Scope baseline - Scope statement. -information can be used in estimating cost. -are assumptions include indirect cost or not? - Work breakdown structure - Relationships between all component and deliverables - WBS dictionary. - a description of the work in each WBS component required to produce each deliverable
  9. 9. Project Schedule - the type and quantity of resources. - Schedule activity resources and their respective durations - availability and quantities required of staff and material needed to perform schedule activities.
  10. 10. Human Resource Plan -Project staffing attributes, personnel rates, and related rewards /recognition
  11. 11. • Risk Register - consider risk mitigation costs. • Risks which can be either threats or opportunities, typically have an impact on both activity and overall project costs.
  12. 12. TOOLS & TECHNIQUES • Cost of Quality (COQ) • Assumptions about costs of quality to prepare the activity cost estimate. • Vendor Bid Analysis - analysis of what the project should cost, based on the responsive bids from qualified vendors. - Where projects are awarded to a vendor under competitive processes, additional cost estimating work can be required of the project team to examine the price of individual deliverables
  13. 13. Estimate Cost • The process of developing approximation of the monetary resources needed to complete project activities Inputs 1. Scope baseline 2. Project schedule 3. Human resource plan 4. Risk register 5. Enterprise environmental factors 6. Organizational process assets Tools & Techniques 1. Expert judgment 2. Analogous estimating 3. Parametric estimating 4. Bottom-up estimating 5. Three-point estimates 6. Reserve analysis 7. Cost of quality 8. Project management estimating software 9. Vendor bid analysis Outputs 1. Activity cost estimates 2. Basis of estimates 3. Project document updates
  14. 14. 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. • Costs are estimated for all resources that are applied to the activity cost estimate.
  15. 15. ACTIVITY COST ESTIMATES Project Title: Date Prepared: WBS ID Resourc e Direct Costs Indirect Costs Reserve Estimate Method Assumptions/ Constraints Additional Information Range Confidence Level From WBS Type of resource, labor, material, etc. Costs relate d to the projec t Indirect costs. Contingenc y reserve amounts. Approximat e cost Method used, such as parametric , analgous, etc Any assumptions used in developing the estimate, such as labor cost per hour. Information on cost of quality, interest rate, or other Range of estimate if applicable. Degree of confidence in the estimate.
  16. 16. ACTIVITY COST ESTIMATES Project Title: Date Prepared: WBS ID Resourc e Direct Costs Indirect Costs Reserve Estimate Method Assumptions/ Constraints Additional Information Range Confidence Level From WBS Type of resource, labor, material, etc. Costs relate d to the projec t Indirect costs. Continge ncy reserve amounts. Approximate cost Method used, such as parametric , analgous, etc Any assumptions used in developing the estimate, such as labor cost per hour. Information on cost of quality, interest rate, or other Range of estimate if applicable. Degree of confidence in the estimate. Constructing private hospital 5/11/2012 500 7525 analogous Prices not exceed From 7000- 7525 90% High quality cost 1000 257000machine1.1.1.3
  17. 17. Basis of Estimates - Documentation of the basis of the estimate - 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) - Indication of the confidence level of the final estimate.
  18. 18. COST ESTIMATING WORKSHEET Project Title: Date Prepared: Parametric Estimates WBS ID Cost Variable Cost per Unit Number of Units Cost Estimate 1.1 Square feet $9.50 36 $342 Analogous Estimates WBS ID Previous Activity Previous Cost Current Activity Multiplier Cost Estimate 1.1 Build 160 sq ft. deck $5,000 Build 200 sq. ft. deck 1.25 $6,250 Three Point Estimates WBS ID Optimistic Cost Most Likely Cost Pessimistic Cost Weighting Equation Expected Cost Estimate 1 $4,000 $5,000 $7,500 (o+4m+p)/6 $5,250 Constructing private hospital
  19. 19. BOTTOM-UP COST ESTIMATING WORKSHEET Project Title: Date Prepared: WBS ID Labor Hours Labor Rates Total Labor Material Supplies Equipment Travel Other Direct Costs Indirect Costs Reserve Estimate From WBS. From duration estimates. By hour, day or fixed rate. Hours x rates. From quotes. From quotes. From quotes. From quotes. As appropriate. Per company policy. As appropriate. Sum of all costs. 1.1.1.3 800 0.05 4 20 7000 25 20 25 250 500 7840 Constructing private hospital 5/11/2012
  20. 20. Cost Aggregation Cost estimates are aggregated by work packages in accordance with the WBS. The work package cost estimates are then aggregated for the higher component levels of the WBS
  21. 21. Reserve Analysis • Reserves & risk management are important while estimating! – Contingency reserves:  Cost Baseline the cost impacts of the remaining risk – Management reserves:  Cost Budget extra fund to cover unforeseen risk or changes to the project Activity estimates Work package estimates Control account estimates Project estimates Contingency reserves Management reserves Cost baseline Cost budget
  22. 22. Historical Relationships -use of project characteristics (parameters) to develop mathematical models to predict total project costs. (e.g., residential home construction is based on a certain cost per square foot of space)
  23. 23. Funding Limit Reconciliation -The expenditure of funds should be reconciled with any funding limits on the commitment of funds
  24. 24. Determine Budget Process of aggregating the estimated cost of individual activities or work packages to establish an authorized cost baseline. Inputs 1. Activity cost estimates 2. Basis of estimates 3. Scope baselines 4. Project schedule 5. Resource calendars 6. Contracts 7. Organizational process assets Tools & Techniques 1. Cost aggregation 2. Reserve analysis 3. Expert judgment 4. Historical relationship 5. Funding limit reconciliation Outputs 1. Cost performance baseline 2. Project funding requirements 3. Project document updates
  25. 25. - authorized time-phased budget at completion - It is developed as a summation of the approved budgets by time period and is typically displayed in the form of an S-curve, Cost Performance Baseline
  26. 26. Project Funding Requirements . The total funds required are those included in the cost baseline, plus management reserves
  27. 27. QUESTIONS?
  28. 28. 1- a cost management plan contains a description of: A-the project costs B- how resources are allocated C- the budgets and how they were calculated D- the WBS level at which earned value will be calculated
  29. 29. 2- a definitive estimate is A- a level of estimating that can be achieved without the team help B-created during the initiating process group C- the most expensive to create D- within a range of -10 percent to +25 percent of actual
  30. 30. 3- a project manager wants to decrease costs on a project that a consultants is completing for her company what costs should the project manager consider to accomplish this? A- variable and fixed B- variable and direct C-fixed and indirect D- direct and indirect
  31. 31. 4- Which type of costs is team training? A ) Direct B ) E V C ) Indirect D ) fixed 31
  32. 32. 5- A project manager has completed a detailed WBS and cost estimates for each work package. To create a cost baseline from this data, the project manager would : A ) Use the highest level of the WBS to estimate analogously B ) Sum up the work package and risk contingency reserve estimates. C ) Roll up work package estimates into a project total and add managements reserves. D ) Gain expert opinions of the project costs. 32
  33. 33. 6- You are having difficulty estimating the cost of your project. Which of the following BEST describes the most probable cause of your difficulty? A ) Inadequate scope definition B ) Unavailability of desired resources C ) Lack of historical records from previous projects D ) Lack of company processes 33
  34. 34. 7-If you use the Funding Limit Reconciliation technique while performing the Determine Budget process, which of the following will NOT change? A) Activity Cost Estimates B) Schedule C) Resources required during an Iteration D) Planned scope to be delivered in a Sprint
  35. 35. 8- Which is NOT true about Analogous Cost Estimating A-Uses Expert Judgment B-Used when reference projects are similar C-Does not require high expertise on part of estimators as estimates are based on previous projects D-Useful in early phases of the project
  36. 36. Thank you

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