3. July 15, 2014
Cost Management
The project excellence competence matrix has 10 competencies:
• Client relationships
• Expanding business
• Commercial acumen
• Commercial risk management
• Leadership
• Project management
• Service delivery
• Meeting statutory requirements
• Design/solution coordination
• Knowledge management
4. July 15, 2014
Cost Management
• What is Project Cost Management ?
A group of Halcrow processes involved in planning, estimating,
budgeting, and controlling costs so that the project can be completed
within the approved budget.
• Project cost management is primarily concerned with the cost of the
resources needed to complete project schedule activities
5. July 15, 2014
Cost Management
• Cost Estimating
• Cost Budgeting
• Cost Control
6. July 15, 2014
Cost Estimating
• Analogous estimating (Top Down estimating): Activity Duration
Estimating.
• 2. Determine Resource Cost Rate: The unit cost rates, such as staff cost
per hour and bulk material cost per cubic yard should be known.
• 3. Bottom-up estimating: This technique involves estimating the cost of
individual activities or work packages, then summarizing or rolling up
the individual estimates to get a project total.
• 4. Parametric Estimating: Is a technique that uses a statistical
relationship between historical data and other variables (e.g. square
footage in construction, lines of code in software development,
required labor hours) to calculate a cost estimate for a schedule
activity resource.).
• 5. Project Management Software: Computerized tools, such as cost
estimating software applications, computerized spreadsheets and
simulation/statistical tools, are widely used to assist with cost
estimating
7. July 15, 2014
Cost Estimating
• 6. Vendor Bid Analysis.
• 7. Reserve Analysis: Estimates should include reserves, also called
contingencies (estimated costs to be used at the discretion of the
project manager to deal with anticipated, but not certain, events,
(“known unknowns”)
8. July 15, 2014
Cost Estimating
• Accuracy of Cost Estimates
• Order of Magnitude Estimate
– Cost estimating done during the concept phase.
– The accuracy of estimates made at this time can only be: from
-25% to +75% (AED 10,000 ± = from AED 7,500 to 17,500).
• Budget Estimate
– Cost estimating done during Early Project Planning Phase.
– The accuracy of estimates made at this time can only be: from
-10% to +25% (from AED 9,000 to AED 12,500).
• Definitive Estimate
– Cost estimating done during End of Planning Phase
– The accuracy of estimates made at this time can only be: from
-5% to +10% (from AED 9,500 to AED 11,000).
9. July 15, 2014
Cost Budgeting
• Cost Budgeting
• . Cost Aggregation: Schedule activity 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, such as control accounts, and ultimately for the entire project.
• 2. Reserve Analysis: Establishes contingency reserves, such as the
management contingency reserve, that are allowances for unplanned,
but potentially required, changes “unkown unkowns”. Project
manager must obtain approval before obligating or spending this
reserve. IT IS NOT PART OF PROJECT COST BASELINE.
• 3. Parametric modeling: Using project characteristics (or parameters) in
a mathematical model to predict total project costs. Models can be
simple or complex. The model is likely to be reliable if:
– The historical information used to develop the model is accurate.
– The parameters used in the model are readily quantifiable.
– The model is scalable such that it works as well for a very large
project as well as a small one.
10. July 15, 2014
Cost Budgeting
• 4. Funding Limit Reconciliation: Large variations in the periodic
expenditure of funds are usually undesirable for organizational
operations, Therefore, the expenditure of funds is reconciled with the
funding limits set by the customer or performing organization on
disbursement of funds for the project.
11. July 15, 2014
Cost Control
• Cost Control What is Cost Control?:-
– Influencing the factors that create changes to the cost baseline.
– Ensuring requested changes are agreed upon.
– Assuring that potential cost overruns do not exceed the authorized
funding periodically and in total for the project.
– Monitoring cost performance to detect variances from the cost baseline.
– Recording all appropriate changes accurately against the cost baseline
– Preventing incorrect, inappropriate, or unapproved changes from being
included in the reported cost or resource usage.
– Informing the appropriate stakeholders of approved changes.
– Acting to bring expected cost overruns within acceptable limits.
– Project cost control searches out the causes of positive and negative
variances and is part of Integrated Change Control
12. July 15, 2014
Cost Control
Cost control
• 1. Cost change control system: Procedures by which the cost baseline
can be changed. It includes:
– Forms
– Documentation
– Tracking system.
– Approval levels necessary for authorizing changes.
– 2. Performance measurement Analysis: Helps to assess the
magnitude of any variances that will invariably occur, in addition to
the cause of the variance, and to decide if the variance requires
corrective action. The Earned Value Technique (EVT) compares the
cumulative value of the budgeted cost of work performed (earned)
at the original allocated budget amount to both the budgeted cost
of work scheduled (planned) and to the actual cost of work
performed (actual).
13. July 15, 2014
Cost Control
• 4. Project Performance Reviews: Are meetings held to compare cost performance
over time, schedule activities or work packages overrunning and under running
budget (planned values), milestones due, and milestones met. They are used in
conjunction with:
– Variance Analysis: Comparing actual project performance to planned or
expected performance.
– Trend Analysis: Involves examining project performance over time to
determine if performance is improving or deteriorating.
– Earned value technique: Compares planned performance to actual
performance.
• 5. Project Management Software: Such as computerized spreadsheets, is often
used to monitor PV versus AC, and to forecast the effects of changes or
variances.
• 6. Variance Management: The cost management plan describes how cost
variances will be managed, for example, having different responses to major or
minor problems
16. July 15, 2014
How to join Project Excellence
• Approach someone you know is a PEx mentor directly
Full list of mentors on the PEx Halnet site (recommended approach)
• Speak to your Regional or BG PEx champion or your office PEx leader
and ask them for advice in recommending a mentor.
• Send an e-mail to the projectexcellence@halcrow.com to register your
interest.
Names on this list are passed on to new mentors seeking mentees.
Note that this approach has the least chances of finding a mentor for you
quickly.
17. July 15, 2014
References
• Halnet
• Project Excellence (PEx) Web site
• Project management Institute (PMI)
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