Chapter 07 Updated.pptx

1. CHAPTER 07:
PROJECT COST
MANAGEMENT
Giovanni Bambaren

2. 7.1 PLAN COST MANAGEMENT

3. 7.1.1 PLAN COST
MANAGEMENT:
INPUTS
1. Project Charter
2. Project Management
Plan (PMP)
Schedule Management
Plan.
Risk Management Plan
3. Enterprise Environmental Factors (EEFs)
4. Organizational Process Assets (OPAs)

4. 7.1.2 PLAN COST
MANAGEMENT:
TOOLS AND
TECHNIQUES
1. Expert Judgement
2. Data Analysis
 A data analysis technique that can be used for this
process includes but is not limited to alternatives
analysis. Alternatives analysis can include reviewing
strategic funding options such as: self-funding,
funding with equity, or funding with debt. It can
also include consideration of ways to acquire
project resources such as making, purchasing,
renting, or leasing.
3. Meetings

5. 7.1.3 PLAN COST
MANAGEMENT:
OUTPUTS
1. Cost
Management Plan
The cost management plan is a component of the project
management plan and describes how the project costs
be planned, structured, and controlled. The cost
management processes and their associated tools and
techniques are documented in the cost management

6. 7.1.4 PLAN COST
MANAGEMENT:
QUESTIONS
Which process provides direction on how
the project costs will be managed
throughout the project?
Which document describes how costs will
be estimated, structured, and controlled?

7. 7.2 ESTIMATE COSTS

8. 7.2.1
ESTIMATE
COSTS:
INPUTS
1. Project Management Plan (Cost Management Plan,
Quality Management Plan, Scope Baseline)
2. Project Documents (Lessons Learned Register, Project
Schedule, Resources Requirements, Risk Register)
3. Enterprise Environmental Factors (EEFs)
4. Organizational Process Assets (OPAs)

9. 7.2.2 ESTIMATE COSTS: TOOLS AND
TECHNIQUES
1. Expert Judgment
2. Analogous
Estimating
3. Parametric
Estimating
4. Bottom-Up
Estimating
5. Three-Point
Estimating
6. Data Analysis
(Alternative, Reserve,
Cost of Quality (COQ))
7. PMIS
8. Decision Making
(Voting)

10. 7.2.3 ESTIMATE COSTS: OUTPUTS
1. Cost Estimates
 Cost estimates include quantitative assessments of the probable costs
required to complete project work, as well as contingency amounts to
account for identified risks, and management reserve to cover
unplanned work. Cost estimates can be presented in summary form
or in detail. Costs are estimated for all resources that are applied to
the cost estimate. This includes but is not limited to direct labor,
materials, equipment, services, facilities, information technology, and
special categories such as cost of financing (including interest
charges), an inflation allowance, exchange rates, or a cost contingency
reserve.

11. 7.2.3 ESTIMATE COSTS: OUTPUTS
2. Basis of Estimates
 Documentation of the basis of the estimate (i.e., how it was developed),
 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), and
 Indication of the confidence level of the final estimate.
3. Project Documents Updates

12. 7.2.4 ESTIMATE COSTS: QUESTIONS
The organization always estimates the
development of each web page for all
projects at $100. Therefore, you estimate
4000 pages will cost $400,000 . This is an
example of:
The work required to develop some of the
web pages is complex, so you are uncertain
about how much those pages will cost to
develop. You decide to calculate an estimate
averaging three different costs that
the best case, worse case, and realistic
estimates. This is an example of:

13. 7.2.4 ESTIMATE COSTS: QUESTIONS
Earlier in the project, you had
estimated the project would cost
$400,000 because that was the cost
for another similar project in the
company. This is an example of:
The team has helped you break
the specific work involved, so you
estimate at this lower level of work,
then sum up the costs to get cost
estimates for developing the website.
This is an example of:

14. 7.3 DETERMINE BUDGET

15. 7.3.1
DETERMINE
BUDGET:
INPUTS
1. Project Management Plan (Cost Management Plan, Resource Management
Scope Baseline)
2. Project Documents (Basis of Estimates, Cost Estimates, Project Schedule, Risk
Register)
3. Business Documents (Business Case, Benefits Management Plan)
4. Agreements
5. EEFs
6. OPAs

16. 7.3.2 DETERMINE BUDGET: TOOLS
AND TECHNIQUES
1. Expert Judgment
2. Cost Aggregation
 It is the process of collecting individual cost estimates into a whole. Specifically, cost estimates are aggregated by
work packages, then into higher components (typically monitored by control accounts) of the work break down
structure (WBS), and then for the entire project.
3. Data Analysis (Reserve Analysis: Contingency and Management Reserves)
4. Historical Information Review: Review of historical information can be used to develop parametric or
analogous estimates. Historical information my include project characteristics to evolve mathematical
models to forecast the total project cost.
5. Funding Limit Reconciliation: Funding limit reconciliation consists of accommodating the expenditure
of funds to established funding limits for a specific period of time. Any variances between expenditures
and funding limits can result in rescheduling work. To prevent this, any date constraints for work
should be included in the work schedule.
6. Financing

17. 7.3.3
DETERMINE
BUDGET:
OUTPUTS
1. Cost Baseline
2. Project Funding Requirements
3. Project Documents Updates (Cost
Estimates, Project Schedule, Risk Register)

18. 7.3.3 DETERMINE BUDGET: OUTPUTS

19. 7.3.4 DETERMINE BUDGET:
QUESTIONS
1. An important technique used in Determine Budget process is:
2. Which type of reserve is included in the Cost Baseline?
a) Management Reserve
b) Contingeny Reserve
3. Which reserves is attributed to unforeseen risks that have not been
identified?
4. An important output of the Determine Budget process is the:

20. 7.4 CONTROL COSTS

21. 7.4.1
CONTROL
COSTS:
INPUTS
1. Project Management Plan (Cost Management Plan, Cost
Baseline, Performance Measurement baseline)
2. Project Documents (Lessons Learned Register)
3. Project Funding Requirements
4. Work Performance Data
5. OPAs

22. 7.4.2 CONTROL COSTS: TOOLS
AND TECHNIQUES
1. Expert Judgment
2. Data Analysis: Earned Value Analysis
 Planned Value (PV)
 Earned Value (EV)
 Actual Cost (AC)
 Schedule Variance (SV) = EV - PV
 Cost Variance (CV) = EV - AC
 Schedule Performance Index (SPI) = EV / PV
 Cost Performance Index (CPI) = EV / AC

23. 7.4.2 CONTROL COSTS: TOOLS
AND TECHNIQUES
2. Data Analysis: Variance analysis. Variance analysis, as used in EVA, is
the explanation (cause, impact, and corrective actions) for cost (CV = EV
– AC), schedule (SV = EV – PV), and variance at completion (VAC = BAC
– EAC) variances. Cost and schedule variances are the most frequently
analyzed measurements.

24. 7.4.2 CONTROL COSTS: TOOLS AND TECHNIQUES

25. 7.4.2 CONTROL COSTS: TOOLS
AND TECHNIQUES
2. Data Analysis: Forecasting
 EAC forecast for ETC work performed at the budgeted rate.
 Equation: EAC = AC + (BAC – EV)
 EAC forecast for ETC work performed at the present CPI.
 Equation: EAC = BAC / CPI
 EAC forecast for ETC work considering both SPI and CPI factors.
 Equation: EAC = AC + [(BAC – EV) / (CPI × SPI)]

26. 7.4.2 CONTROL COSTS: TOOLS
AND TECHNIQUES
2. Data Analysis: Reserve Analysis
 During cost control, 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.

27. 7.4.2 CONTROL COSTS: TOOLS
AND TECHNIQUES
3. To-Complete Performance Index (TCPI)
The equation for the TCPI based on the BAC:
• (BAC – EV) / (BAC – AC).
The equation for the TCPI based on the EAC:
 (BAC – EV) / (EAC – AC).

28. 7.4.3
CONTROL
COSTS:
OUTPUTS
1. Work Performance Information
2. Cost Forecast
3. Change Requests
4. Project Management Plan Updates (Cost Management Plan, Cost
baseline, Performance measurement baseline)
5. Project Documents Updates (Assumption Log, Basis of Estimates,
Cost estimates, Lessons Learned Register, Risk Register)

29. 7.4.4
CONTROL
COSTS:
QUESTIONS
Any increase to the authorized budget can only be
approved through ____________
In a project if we have a negative cost variance, it
means we are ____________
SPI < 1 means that the project is ______________
What’s the name of the output that includes calculated
project performance measures?

30. SUMMARY
7.1 Plan Cost Management
7.2 Estimate Costs
7.3 Determine Budget
7.4 Control Costs

31. Cost Mind Map
7.1
Plan Cost
Management
- Exp. Judg.
- Data Analysis
- Meetings
Project
Documents
PMP
Project
Charter
Cost Mgmt.
Plan
7.2
Estimate
Costs
- Exp. Judg.
- Analogous
- Parametric
- Bottom-Up
- Three-points
- Data Analysis
- PMIS
- Decision Making
Cost Estimates
Basis of
estimates
7.3
Determine
Budget
Agreements
Business docs
- Exp. Judg.
- Cost Aggregation
- Data Analysis
- Historical Info.
- Funding Limit
Rec.
- Financing
Cost Baseline
Project Funding
Requirements
7.4
Control
Costs
WPI
WPD
- Exp. Judg.
- Data Analysis (EVA)
- TCPI
- PMIS
Change
Requests
Cost forecasts

32. CASE STUDY 1
 You’re a subcontractor responsible for refurbishment of an automobile
showroom. The estimated refurbishment cost is $500 per square feet.
The total showroom area that needs to be refurbished is 1,000 square
feet. Based on your past experience, you know your team can
refurbish 100 square feet per week. After 4 weeks, you have 45% of
the job complete and you have spent $250,000.
 Determine PV, EV, and AC.
 Calculate CV, SV, CPI, and SPI to determine the performance of the
project in terms of Cost and Schedule

33. CASE STUDY 2
 Your project is required to install lighting fixtures in a 200 room hotel.
You have to install 5 lighting fixtures in each room. Your project’s
approved budget is $500,000 and the approved schedule is 14 weeks.
After 8 weeks, you have 110 of the rooms completed and you have
spent $250,000.
 Determine BAC, PV, EV, and AC.
 Calculate CV, SV, CPI, and SPI to determine the performance of the
project in terms of Cost and Schedule