2. Project cost management
• Project cost management includes the processes involved in estimating,
budgeting, and controlling costs so that the project can be completed within
the approved budget
• It is primarily concerned with the cost of the resources needed to complete
schedule activities
• Should consider the information needs of the project stakeholders
• With proper planning, you can:
• Adjust the project plan to conform to the budget
• Track and manage cost once the project execution begins
• Compare actual cost to the original planned cost and analyze any variances between
the two
2
3. Knowledge Areas Initiating Planning Executing Monitoring & Controlling Closing
Develop project charter
Develop project
management plan
Direct and manage
project execution
Monitor and control project
work
Close
project or
phase
perform Integrated change
control
Collect requirements Varify Scope
define scope Control Scope
Create WBS
Define activities Control schedule
sequence Activity
Estimate acitivity
resources
Estimate activity
durations
Develop schedule
Estimate
costs Control costs
Determine
budget
Project Quality Management Plan quality
Perform quality
assurance Perform quality control
Develop human
resource plan Acquire project team
Develop project team
Manage project team
Identify stakeholders
Plan
communications Distribute information Report performance
Manage stakeholder
expectations Stakeholders
Plan risk
management Monitor and control risks
Identify risks
Perform qualitative
risk analysis
Perform
Quantitative risk
analysis
Project Management Process Groups
Project Integration Mangement
Project Scope Management
Project Time Management
Project Cost Management
Project Human Resource Management
Project Communications Management
Project Risk Management
4. Cost Management Plan
• The planning effort of the processes of the Cost
Management Plan is a part of the develop project
management plan
( Cost management plan can establish the following )
• Precision level - The prescribed precision for rounding data related to schedule
activity cost estimates
• Units of measure - Define units of measurement for each of the resources
• Organizational procedure links - The WBS component used for the project cost
accounting is called a control account (CA); each CA is assigned a code or account
number
• Control thresholds - Variance thresholds for cost at designated time points in the
project to indicate the agreed to amount allowable variance
4
5. • The planning effort of the processes of the Cost
Management Plan is a part of the develop project
management plan
( Cost management plan can establish the following )
• Reporting formats - The format for various cost reports
• Process descriptions - Descriptions of each of the three cost management processes
5
Cost Management Plan
6. 6
7.1 Estimate Costs
The process of developing an approximation (estimate) of the cost of the
resources needed to complete each schedule activity
• Estimator must consider the possible causes of variation of cost
estimates, including risks
• Includes identifying and considering various costing alternatives
• Costs for schedule activities are estimated for all resources that will
be charged to the project
7. 7
Scope Baseline
Project Schedule
The type and quantity of resources and the amount of time which those
resources are applied to complete the work of the project are major
factors in determining the project cost.
Human Resource Plan
Project staffing attributes, personnel rates, and related
rewards/recognition
7.1 Estimate Costs
(Inputs)
8. 8
Risk Register
The risk register should be reviewed to consider risk mitigation costs.
Enterprise Environmental Factors
• Market conditions.
• Published commercial information.
Organizational Process Assets
• Cost estimating policies,
• Cost estimating templates,
• Historical information, and
• Lessons learned.
7.1 Estimate Costs
(Inputs)
13. 13
• Determine Budget is the process of aggregating the estimated costs
of individual activities or work packages to establish an authorized
cost baseline.
• This baseline includes all authorized budgets, but excludes
management reserves.
• Project budgets constitute the funds authorized to execute the
project.
• Project cost performance will be measured against the authorized
budget.
7.2 Determine Budget
15. 15
Cost Aggregation (Tool)
• Schedule activity cost estimates are aggregated by work packages
in accordance with the WBS
• Work package cost estimates are then aggregated for the higher
component levels of the WBS, such as the control account, and
ultimately for the entire project
Funding Limit Reconciliation (Tool)
• The expenditure of funds should be reconciled with any funding
limits on the commitment of funds for the project.
7.2 Determine Budget
18. 18
Cost Performance Baseline (Output)
• The cost performance baseline is an authorized time-phased budget at
completion (BAC) used to measure, monitor, and control overall cost
performance on the project.
• It is developed as a summation of the approved budgets by time period
and is typically displayed in the form of an S-curve
Project Funding Requirements (Output)
• 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 incremental amounts that are not continuous,
which appear as steps
7.2 Determine Budget
22. 22
7.3 Control Costs
Control Costs is the process of monitoring the status of the
project to update the project budget and managing changes to
the cost baseline.
Project cost control includes:
• Influencing the factors that create changes to the authorized cost baseline,
• Ensuring that all change requests are acted on in a timely manner,
• Managing the actual changes when and as they occur,
• Ensuring that cost expenditures do not exceed the authorized funding, by
period and in total for the project,
• Monitoring work performance against funds expended,
23. 23
Project Management Plan (Input)
The project management plan contains the following information that is used
to control cost:
• Cost Performance Baseline.
• Cost Management Plan.
Organizational Process Assets (Input)
• Existing formal and informal cost control-related policies, procedures,
• Cost control tools; and
• Monitoring and reporting methods to be used
Project Funding Requirements (Input)
Work Performance Information (Input)
7.3 Control Costs
24. 24
• Earned Value Management (Tools)
• Forecasting (Tools)
• To-Complete Performance Index (TCPI) (Tools)
• Performance Reviews (Tools)
• Variance Analysis (Tools)
7.3 Control Costs
25. 25
Inputs
• Project management
plan
• Project Funding
Requirements
• Work Performance
Information
• Organizational
process assets
Tools & Techniques
• Earned value management
• Performance measurement
Analysis
• Forecasting
• To-complete performance
index (TCPI)
• Performance Reviews
• Project Management
Software
• Variance analysis
Outputs
• Work Performance
Measurements
• Budget forecasts
• Change requests
• Recommended Corrective
action
• Organizational Process
Assets (Updates)
• Project management plan
(Updates)
• Project document (Updates)
7.3 Control Costs
27. 27
Earned Value Management Analysis
Earned value technique (EVT)
Compares the cumulative value of the budgeted cost of work Earned to both
1. The budgeted cost of work scheduled (planned)
2. The actual cost or work performed (actual)
An important part of Cost Control is to determine the cause of a variance, the
magnitude of the variance, and to decide if the variance requires corrective
action
EVT uses the Cost Baseline contained in the project management plan to
assess project progress and the magnitude of any variations that occur
28. 28
• Earned Value. (EV)
Value of work performed expressed in terms of the approved budget
• Planned Value. (PV)
Authorized budget assigned to the work to be accomplished for an activity or
work breakdown structure component.
• Actual Cost. (AC)
Total cost actually incurred and recorded in accomplishing work performed
for an activity or work breakdown structure component.
• Schedule Variance (SV)
is a measure of schedule performance on a project.
SV = ( EV – PV )
• Cost Variance (CV)
is a measure of cost performance on a project.
CV = ( EV – AC )
Earned Value Management Analysis
29. 29
• Schedule performance index (SPI)
Is a measure of progress achieved compared to progress planned on a the
project.
SPI = ( EV / PV )
• Cost performance index (CPI)
Is a measure of the value of work completed compared to the actual cost on
the project.
CPI = ( EV / AC )
Earned Value Management Analysis
30. 30
Example
We are about to produce 20 tables in 20 days cost is $20 for each.
How much BAC = ???
BAC = $20 * 20 tables = $400
Today is day 4 How much is the PV ?
PV = $20 x 4 tables = $80
At day 4 i earned only 3 tables, how much is the EV ?
EV = $20 x 3 tables = $60
AC = $90
SV = EV – PV = 60 – 80 = -$20
CV =EV – AC = 60 – 90 = -$30
SPI = EV / PV = 60 / 80 = 0.75
CPI = EV / AC = 60 / 90 = 0.666
Earned Value Management Analysis
31. 31
Forecasting
Estimate At Completion (EAC) actual costs incurred for work completed, plus an
estimate to complete (ETC) the remaining work.
EAC = ( AC + ETC )
EAC forecast for ETC work performed at the budgeted rate
EAC = AC + ( BAC – EV )
= 90 + ( 400 – 60 ) = $430
EAC forecast for work performed at the percent CPI
EAC = BAC / CPI
= 400 / .66 = $606.6
EAC forecast for ETC work considering both SPI and CPI factors
EAC = AC + [ ( BAC – EV ) / ( CPI * SPI ) ]
= 90 + [ (400 – 60 ) / ( 0.75 * 0.66 ) ]
= $868.68
32. 32
To-Complete Performance Index (TCPI)
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.
Work Remaining / Funds Remaining
Work Remaining = ( BAC – EV )
Funds Remaining = ( BAC – AC ) Or ( EAC – AC )
TCPI = ( 400 – 60 ) / ( 400 – 90 )
= 1.096
OR
TCPI = (400 – 60 ) / ( 606 – 90 )
= 0.658
35. 35
Example - Wall Construction
Wall Construction
Time = 1 week per wall
Cost = $ 1,000 per wall, materials and labor
Total Schedule = 4 weeks
Total Cost = $ 4,000
Working days 5 day per week starting on
Sunday and finish on Thursday by 5 PM
Assume production is liner
36. 36
Wall 1 100% = $ 1,000
Wall 2 80% = $ 800
Wall 3 0% = 0
Wall 4 0% = 0
PV = $ 1,800
How much work should
have been completed -
PV?
5 pm Wednesday, Week 2
PLANNED
37. 37
Wall 1 100% = $ 1,000
Wall 2 50% = $ 500
Wall 3 10% = $100
Wall 4 0% = 0
Total = $1,600
5 pm Wednesday, Week 2
What is the budgeted
value of actual work -
EV?
10 %
50 %
EARNED
42. 1- Half way through the executing processes of your
project, a team member alerts you to a potential cost
overrun for a specific deliverable. What do you do first?
A ) Determine the projected actual cost.
B ) Implement a change control process to track the
change
C ) Inform the customer.
D ) Determine the cause of the overage
42
43. 1- Half way through the executing processes of your
project, a team member alerts you to a potential cost
overrun for a specific deliverable. What do you do first?
A ) Determine the projected actual cost.
B ) Implement a change control process to track the
change
C ) Inform the customer.
D ) Determine the cause of the overage
43
44. 2 - Which type of costs is team training?
A ) Direct
B ) E V
C ) Indirect
D ) fixed
44
45. 2 - Which type of costs is team training?
A ) Direct
B ) E V
C ) Indirect
D ) fixed
45
46. 3- 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.
46
47. 3- 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.
47
48. 4- 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
48
49. 4- You are having difficulty estimating the cost of your
project. Whish 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
49
50. 5- Which of the following represents the value
of work we have actually completed?
A ) Earned value
B ) Planned value
C ) Actual cost
D ) Estimate to complete
50
51. 5- Which of the following represents the value
of work we have actually completed?
A ) Earned value
B ) Planned value
C ) Actual cost
D ) Estimate to complete
51
52. 6- While completing your project, you realized that you
need to decrease the project costs. After researching
your options, you came up with the following choices.
Which choice would DECREASE project costs?
A ) Change to component A from component B. component A
costs more to purchase, but has a lower life cycle cost than B.
B ) Change activity A to be completed by resource B instead of
resource c. resource B is more experienced worker.
C ) Move activities B and H to occur concurrently, and accept a
30 percent increase in the risk that five more resources will be
needed later.
D ) Remove a test from the project management plan.
52
53. 6- While completing your project, you realized that you
need to decrease the project costs. After researching
your options, you came up with the following choices.
Which choice would DECREASE project costs?
A ) Change to component A from component B. component A
costs more to purchase, but has a lower life cycle cost than B.
B ) Change activity A to be completed by resource B instead of
resource c. resource B is more experienced worker.
C ) Move activities B and H to occur concurrently, and accept a
30 percent increase in the risk that five more resources will be
needed later.
D ) Remove a test from the project management plan.
53
54. 7- If earned value (EV) is U.S.$300000, actual
cost (AC) is U.S.$350000, and planned value (PV)
is U.S. $375000, what does the schedule
performance index (SPI) indicate?
A ) You are progressing at 86% of the rate originally
planned.
B ) You are progressing at 125% of the rate originally
planned.
C ) You are progressing at 116% of the rate originally
planned.
D ) You are progressing at 80% of the rate originally
planned. 54
55. 7- If earned value (EV) is U.S.$300000, actual
cost (AC) is U.S.$350000, and planned value (PV)
is U.S. $375000, what does the schedule
performance index (SPI) indicate?
A ) You are progressing at 86% of the rate originally
planned.
B ) You are progressing at 125% of the rate originally
planned.
C ) You are progressing at 116% of the rate originally
planned.
D ) You are progressing at 80% of the rate originally
planned. 55
56. 8- The formula, EAC = BAC/CPI, assumes that:
A ) All subsequent work will be completed at the
planned expenditures.
B ) All subsequent work will be completed at the
planned expenditures, excluding the work packages
currently under way
C ) All subsequent work will be completed based upon
the cost performance to-date
D ) The cost performance cannot change during the
project
56
57. 8- The formula, EAC = BAC/CPI, assumes that:
A ) All subsequent work will be completed at the
planned expenditures.
B ) All subsequent work will be completed at the
planned expenditures, excluding the work packages
currently under way
C ) All subsequent work will be completed based upon
the cost performance to-date
D ) The cost performance cannot change during the
project
57
58. 9- Feasibility study answers the question “can
we do it?” cost benefit analysis answer the
question---------
A ) Should we do it?
B ) Are the safety risks acceptable?
C ) Is it beneficial to have a high level sponsor?
D ) Does the technology exist?
58
59. 9- Feasibility study answers the question “can
we do it?” cost benefit analysis answer the
question---------
A ) Should we do it?
B ) Are the safety risks acceptable?
C ) Is it beneficial to have a high level sponsor?
D ) Does the technology exist?
59
60. 10- What tool must project managers rely upon
to accurately identify the costs associated with
the project?
A ) A bill of materials
B ) A Gantt chart
C ) A precedence diagram network
D ) A work breakdown structure
60
61. 10- What tool must project managers rely upon
to accurately identify the costs associated with
the project?
A ) A bill of materials
B ) A Gantt chart
C ) A precedence diagram network
D ) A work breakdown structure
61
