Project Cost Management

Cost Management
Martin Sillaots
2019
# 8

Purpose of the Cost Management
Budgeting and controlling the costs so that the
project can be completed within the approved
budget
www.projektor.ee/pm/#cost

Cost Management
• Cost estimating
• Cost budgeting
• Cost control

Project Phases and Processes
Initiation
Planning
Execution Control
Closing

Cost in the Project Plan
Scope
definition
Quality
planning
Activity
definition
Activity
sequencing
Duration
estimation
Schedule
development
Organization
planning
Resource
planning
Communica-
tion planning
Procurement
planning
Plan
contracting
Select
sellers
Seller
responses
Risk
management
Risk
identification
Qualitative
analysis
Quantitative
analysis
Response
planning
Budgeting
Project
plan
Initiation
Execution
WBS

Inputs:
- Enterprise factors
- Organization assets
- Project Scope
- WBS
- Schedule
- Staffing plan
- Resource rates
Methods:
- Estimating methods
- Budgeting
- PM Software
Outputs
- Activity cost
estimates
- Cost baseline
- Project funding
requirements
Cost Budgeting

Inputs
Cost Budgeting

Enterprise Factors
• Market conditions
• Commercial databases

Organizational Assets
• Cost estimating policies
• Cost estimating templates
• Historical information
• Project files
• Knowledge and experience

Example of Resource Rates
P1 P6 P2 P3 P4 P5 P7
EE EE IT BG EL EL PT
TLU Gamrilla USGM IMI UTH CERTH ISEP
MANAGERS 240,00 240,00 286,83 180,00 164,00 164,00 255,33
RESEARCHERS 200,00 200,00 152,62 160,00 137,00 137,00 239,58
TECHNICAL 180,00 180,00 292,65 160,00 102,00 102,00 54,76
ADMINISTRATIVES 160,00 160,00 225,70 50,00 78,00 78,00 94,62
Staff cost day

Methods
Cost Budgeting

Cost Estimating Methods
• Top-down
• Parametric
• Comparative
• Bottom-up

Cost Estimate levels
• Approximate ± 25%
• Comparative ± 15%
• Operational ± 10%
• Exact ± 5%
± 0% when the project is completed

Exercise
Project Cost Estimation based on WBS

Cost Estimation Example
WBS Cost
1 Needs Analysis 4 800
2 Content Development 20 400
3 Software Design 4 800
4 Software Development 14 400
5 Study/analysis 6 000
6 Teacher Materials 2 400
7 Public Relations 8 400
Total 61 200

Outputs
Cost Budgeting

Cost Budgeting Outcomes
• Budget plan
• Cash flow forecast
• Project total cost
• Funding plan
• Resource cost details

Task, WP and Project Cost
Cash Flow Forecast
Resource Costs

Budget Example

Funding Plan Example
No Period Date
1 - M4/5
2 M1 - M6 M10
3 M1 - M12 M16
4 M13 - M18 M22
5 M18 - M24 M28
6 M25 – M30 M34
7 M25 - M36 M40
M37- M42
8 M37 - M48 M48+4
Payment Total funding
60 000 60 000
20 000 80 000
15 000 95 000
25 000 120 000
25 000 145 000
10 000 155 000
15 000 170 000
0 170 000
30 000 200 000

Budget, Cash Flow and Funding
BMBOK Guide 2009

Cost Control

Cost Control
Information
distribution
Project
execution
Procurement
management
Reporting
Team
development
Schedule
control
Scope
verification
Cost
control
Quality
control
Risk
monitoring
Change
management
Planning
Closing

Inputs:
- Project plan
- Project budget
- Funding
requirements
- Performance reports
Methods:
- Cost control system
- Performance
measurement
analysis
- Performance reviews
- Variance analysis
- Forecasting
- PMIS
Outputs
- Cost estimation
updates
- Budget updates
- Project plan updates
- Forecasts
- Corrective actions
- Trends
Cost Control

Cost Control System
• Comparing actual costs with baseline costs
• Reflecting schedule and scope changes in the
budget
• Avoiding non-eligible expenses
• Change communication
• Bringing cost overruns within accepted limit

Earned Value Method
Method that measures
performance of the project and
forecast future performance based
on past performance
work completed ratio × budget price

Earned Value Analysis EVA
• Method for measuring project progress
• Project scope, duration and cost integration
• Enables to estimate project final cost and duration in
the middle of the project

Concept of Earned Value
• Planned value (PV) = planned work × budget price
• Earned value (EV) = work completed ratio × budget
price (actual performance % × budgeted total cost)
• Actual cost (AC) = actual work × actual cost

Planned Value - Earned Value - Actual Value
BMBOK Guide 2009 www.projektor.ee/pm/#cost

Earned Value Implementation
• Cost variance (CV) = earned value (EV) – actual cost (AC)
• Schedule variance (SV) = earned value (EV) – planned value
(PV)
• Cost estimation (cost performance index CPI) = earned
value(EV) / actual cost (AC)
• Duration estimation (schedule performance index SPI) =
earned value (EV) / planned value (PV)

Planned task duration 4 d
Planned resource cost 30 $/h
Planned task total cost 960 $/h
Completed duration 2 d
Planned percent complete 50%
Remaining duration estimation 3 d
Actual percent complete 40%
Actual resource cost 25 $/h
How big is:
Planned value 480 $
Earned value 384 $
Actual value 400 $
Estimated total cost 1000 $

Planned task duration 4 d
Planned resource cost 30 $/h
Planned task total cost 960 $/h = 4d x 30 x 8h
Completed duration 2 d
Planned percent complete 50% = 2d / 4d
Remaining duration estimation 3 d
Actual percent complete 40% = 2d / 5d
Actual resource cost 25 $/h
How big is:
Planned value 480 $ = 2d x 30 x 8h
Earned value 384 $ = 960 x 40%
Actual value 400 $ = 2d x 25 x 8h
Estimated total cost 1000 $ = 5d x 8d x 25$/h

Variance Analysis
Task Name Fixed
Cost
Total Cost Baseline Variance Actual Remaining
Mullatööd 0,00 € 9 840,00 € 8 640,00 € 1 200,00 € 9 840,00 € 0,00 €
Pinnase
eemaldamine
0,00 € 2 400,00 € 1 200,00 € 1 200,00 € 2 400,00 € 0,00 €
Süvendi kaevamine 0,00 € 2 400,00 € 2 400,00 € 0,00 € 2 400,00 € 0,00 €
Pinnase äravedu 0,00 € 4 400,00 € 4 400,00 € 0,00 € 4 400,00 € 0,00 €
Planeerimine 0,00 € 640,00 € 640,00 € 0,00 € 640,00 € 0,00 €
Vundament ja põrand 0,00 € 11 000,00 € 11 000,00 € 0,00 € 4 493,33 € 6 506,67 €
Tihendatud aluse
rajamine
0,00 € 1 880,00 € 1 880,00 € 0,00 € 1 880,00 € 0,00 €
Vundamendi ja
põranda valamine
0,00 € 7 840,00 € 7 840,00 € 0,00 € 2 613,33 € 5 226,67 €
Vundamendi
soojustamine
0,00 € 1 280,00 € 1 280,00 € 0,00 € 0,00 € 1 280,00 €

Cost Forecasting Method
• CPI - Cost Performance Index (CPI= EV/AC)
• ETC - Estimate to Complete - the remaining cost of
the project
• EAC - Estimate at Completion - the total cost of the
project at the end

Trend Analysis

The End of the Money
martinsillaots@gmail.com

Project Cost Management

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