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Project Cost Management - PMBOK6

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The concepts and processes on how to perform project cost management according to PMBOK Guide 6th edition. You'll find key concepts and terms, plan cost management, estimate costs, determine budget, and control cost.

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Project Cost Management - PMBOK6

  1. 1. Module 7 Project Cost Management Agus Suhanto
  2. 2. Module Overview • Lesson 1: Key Concepts & Terms • Lesson 2: Plan Cost Management • Lesson 3: Estimate Costs • Lesson 4: Determine Budget • Lesson 7: Control Costs
  3. 3. Lesson 1: Key Concepts & Terms • Project Cost Management • Project Cost Management Processes • Key Terms • Trends & Emerging Practices • Tailoring Considerations • Considerations for Adaptive Environment
  4. 4. Project Cost Management Project cost management is the processes involved in planning, estimating, budgeting, financing, funding, managing, and controlling costs so that the project can be completed within the approved budget.
  5. 5. Project Cost Management Processes • Plan Cost Management • Estimate Costs • Determine Budget • Control Costs
  6. 6. Key Terms • Earned value management (EVM): a project management technique for measuring project performance and progress based on the comparison of work performed and work planned. • Life cycle costing: the concept of looking at cost over the entire life of the product, not just the cost of the project to create the product. • Value analysis (value engineering): the concept that focuses on finding a less costly way to do the same work. • Cost risk: cost-related risks.
  7. 7. Key Terms (continued) • Types of costs: • Variable costs: costs that change with the amount of work. • Fixed costs: costs that do not change with the amount of work. • Direct costs: costs directly attributable to the work on the project • Indirect costs: overhead items or costs incurred for the benefit of more than one projects. • Cost estimate ranges: • Rough order of magnitude (ROM): used during project initiating; typical range -25 to +75 percent. • Budget estimate: when starting the plan iteration; typical range -10 to +25 percent. • Definitive estimate: as progress planning progresses; typical range ± 10 percent or -5 to +10 percent.
  8. 8. Trends & Emerging Practices • Expansion of EVM to include the concept of earned schedule (ES)
  9. 9. Tailoring Considerations • Knowledge management • Estimating and budgeting • Earned value management • Use of agile approach • Governance
  10. 10. Considerations for Adaptive Environments • Agile practice uses lightweight estimation methods to generate high-level forecast for project costs. • Detailed estimates are reserved for short-term planning horizons in a just-in-time fashion. • In a strict-budget projects, the scope and schedule are more often adjusted to stay within the cost constraints.
  11. 11. Lesson 2: Plan Cost Management • Plan Cost Management Overview • Plan Cost Management Data Flow • Plan Cost Management Input • Plan Cost Management Tools & Technique • Plan Cost Management Output
  12. 12. Plan Cost Management Overview • Plan cost management is the process of defining how the project costs will be estimated, budgeted, managed, and controlled. • The key benefit: it provides guidance and direction on ho the project costs will be managed throughout the project.
  13. 13. Plan Cost Management Data Flow
  14. 14. Plan Cost Management Input • Project charter • Project management plan • Schedule management plan • Risk management plan • Enterprise environmental factors • Organizational process assets
  15. 15. Plan Cost Management Tools & Techniques • Expert judgment • Data analysis • Alternative analysis • Meetings
  16. 16. Plan Cost Management Output • Project management plan • Cost management plan • Units of measure • Level of precision • Level of accuracy • Organizational procedure links • Control thresholds • Rules of performance measurements • Reporting formats • Additional details
  17. 17. Lesson 3: Estimate Costs • Estimate Costs Overview • Estimate Costs Data Flow • Estimate Costs Input • Estimate Costs Tools & Techniques • Estimate Costs Output
  18. 18. Estimate Costs Overview • Estimate costs is the process of developing an approximation of cost of resources needed to complete project work. • Key benefit: it determines the monetary resources required for the project.
  19. 19. Estimate Costs Data Flow
  20. 20. Estimate Costs Input • Project management plan • Cost management plan • Quality management plan • Scope baseline • Project documents • Lessons learned register • Project schedule • Resource requirements • Risk register • Enterprise environmental factors • Organizational process assets
  21. 21. Estimate Costs Tools & Techniques • Expert judgment • One-point estimating • Analogous estimating • Parametric estimating • Bottom-up estimating • Three-point estimating • Triangular distribution • Beta distribution • Data analysis • Alternative analysis • Reserve analysis • Cost of quality • Project management information system • Decision making • Voting
  22. 22. Three-point Estimating Formula • Triangular distribution: 𝑐𝐸 = 𝑐𝑂 + 𝑐𝑀 + 𝑐𝑃 3 • Beta distribution: 𝑐𝐸 = 𝑐𝑂 + 4 𝑐𝑀 +𝑐𝑃 6
  23. 23. Estimate Costs Output • Project documents • Cost estimates • Basis of estimates • Project documents updates • Assumption log • Lessons learned register • Risk register
  24. 24. Lesson 4: Determine Budget • Determine Budget Overview • Determine Budget Data Flow • Determine Budget Input • Determine Budget Tools & Techniques • Determine Budget Output
  25. 25. Determine Budget Overview • Determine budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. • Key benefit: it determines the cost baseline against which project performance can be monitored or controlled.
  26. 26. Determine Budget Data Flow
  27. 27. Determine Budget Input • Project management plan • Cost management plan • Resource management plan • Scope baseline • Projects documents • Basis of estimates • Cost estimates • Project schedule • Risk register • Business documents • Business case • Benefits management plan • Agreements • Enterprise environmental factors • Organizational process assets
  28. 28. Determine Budget Tools & Techniques • Expert judgment • Cost aggregation • Data analysis • Reserve analysis • Historical information review • Funding limit reconciliation • Financing
  29. 29. Determine Budget Output • Project management plan • Cost baseline • Project funding requirements • Project documents updates • Cost estimates • Project schedules • Risk register
  30. 30. Lesson 7: Control Cost • Control Cost Overview • Control Cost Data Flow • Control Cost Input • Control Cost Tools & Techniques • Control Cost Output
  31. 31. Control Cost Overview • Control cost is the process of monitoring the status of the project to update the project costs and managing changes to the cost baseline. • Key benefit: the cost baseline is maintained throughout the project.
  32. 32. Control Cost Data Flow
  33. 33. Control Cost Input • Project management plan • Cost management plan • Cost baseline • Performance measurement baseline • Project documents • Lessons learned register • Project funding requirements • Work performance data • Organizational process assets
  34. 34. Control Cost Tools & Techniques • Expert judgment • Data analysis • Earned value analysis • Variance analysis • Trend analysis • Reserve analysis • To-complete performance index • Project management information system
  35. 35. EVM Formula • Variances • 𝐶𝑉 = 𝐸𝑉 − 𝐴𝐶 • 𝑆𝑉 = 𝐸𝑉 − 𝑃𝑉 • 𝑉𝐴𝐶 = 𝐵𝐴𝐶 − 𝐸𝐴𝐶 • Indexes • 𝐶𝑃𝐼 = 𝐸𝑉 𝐴𝐶 • 𝑆𝑃𝐼 = 𝐸𝑉 𝑃𝑉 • To-complete performance index • 𝑇𝐶𝑃𝐼= 𝐵𝐴𝐶 −𝐸𝑉 𝐵𝐴𝐶 −𝐴𝐶 or • 𝑇𝐶𝑃𝐼= 𝐵𝐴𝐶 −𝐸𝑉 𝐸𝐴𝐶 −𝐴𝐶 • Estimate at completion • EAC = AC + bottom up ETC • EAC = BAC / CPI • EAC = AC + BAC – EV • EAC = AC + 𝐵𝐴𝐶 − 𝐸𝑉 𝑆𝑃𝐼 × 𝐶𝑃𝐼
  36. 36. Control Cost Output • Work performance information • Cost forecasts • Change requests • Project management plan updates • Cost management plan • Cost baseline • Performance measurement baseline • Project documents updates • Assumption log • Basis of estimates • Cost estimates • Lessons learned register • Risk register
  37. 37. Quiz
  38. 38. Module Reviews
  39. 39. References • [PMBOK6] – The PMBOK 6th edition from pmi.org • [RITA9] – Rita Mulcahy’s PMP Exam Prep 9th edition from RMC Publications™

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