Project cost management based on PMBOK Standards

1. PROJECT COST
MANAGEMENT

2. Defenition
■ Project Cost Management includes the processes involved in planning, estimating,
budgeting, financing, funding, managing, and controlling costs so that the project can
be completed within the approved budget

3. Main Processes
■ 7.1 Plan cost Management—The process that establishes the policies, procedures, and
documentation for planning, managing, expending, and controlling project costs.
■ 7.2 Estimate costs—The process of developing an approximation of the monetary
resources needed to complete project activities.
■ 7.3 determine Budget—The process of aggregating the estimated costs of individual
activities or work packages to establish an authorized cost baseline.
■ 7.4 control costs—The process of monitoring the status of the project to update the
project costs and managing changes to the cost baseline.

4. About Project Cost Management
■ Project Cost Management should consider the stakeholder requirements for
managing costs. Different stakeholders will measure project costs in different ways
and at different times
■ Project Cost Management is primarily concerned with the cost of the resources
needed to complete project activities. Project Cost Management should also consider
the effect of project decisions on the subsequent recurring cost of using, maintaining,
and supporting the product, service, or result of the project

5. Cont..
■ In many organizations, predicting and analyzing the prospective financial performance
of the project’s product is performed outside of the project.When such predictions
and analyses are included, Project Cost Management may address additional
processes and numerous general financial management techniques such as return on
investment, discounted cash flow, and investment payback analysis.

6. Process 1: Plan Cost Management
■ Plan Cost Management is the process that establishes the policies, procedures, and
documentation for planning, managing, expending, and controlling project costs.The
key benefit of this process is that it provides guidance and direction on how the project
costs will be managed throughout the project

7. Project Cost Management: Input
■ Project Mg Plan:
Scope Baseline, Schedule Baseline,etc
■ Proj Charter:
Summary Budget
■ Enterprise environtment Factor:
Culture, Market Condition of Product
■ Organizational Process Assets:
Financial Database, Lesson learned doc.

8. Tools andTechnique
■ Expert judgment,
guided by historical information, provides valuable insight about the environment and
information from prior similar projects. Expert judgment can also suggest whether to
combine methods and how to reconcile differences between them.
■ AnalyticalTechnique.
Organizational policies and procedures may influence which financial techniques are
employed in these decisions.Techniques may include (but are not limited to): payback
period, return on investment, internal rate of return, discounted cash flow, and net present
value.
■ Meetings
Project teams may hold planning meetings to develop the cost management plan.
Attendees at these meetings may include the project manager, the project sponsor,
selected project team members, selected stakeholders, anyone with responsibility for
project costs, and others as needed

9. Output
■ Cost Management Plan
component of the project management plan and describes how the project costs will
be planned, structured, and controlled

10. Process 2:Estimate Cost
■ Estimate Costs is the process of developing an approximation of the monetary
resources needed to complete project activities.The key benefit of this process is that
it determines the amount of cost required to complete project work

11. ■ Cost estimates are a prediction that is based on the information known at a given
point in time. Cost estimates include the identification and consideration of costing
alternatives to initiate and complete the project. Cost tradeoffs and risks should be
considered, such as make versus buy, buy versus lease, and the sharing of resources in
order to achieve optimal costs for the project.

12. Inputs:
■ cost Management Plan
■ Human resource Management Plan
■ Scope Baseline
Project scope statement,WBS
■ Project Schedule
Gantt Chart
■ Risk register
Risks, which can be either threats or opportunities, typically have an impact on both activity and
overall project costs
■ Enterprise Environmental Factors
Market Condition, Published commercial information
■ Organizational Process Assets:
Cost estimating policies, Cost estimating templates, Historical information, and Lessons learned.

13. Tools andTechnique
■ Expert Judgment
Expert judgment, guided by historical information, provides valuable insight about the
environment and information from prior similar projects. Expert judgment can also be
used to determine whether to combine methods of estimating and how to reconcile
differences between them.
■ Analogous Estimating
Analogous cost estimating uses the values such as scope, cost, budget, and duration
or measures of scale such as size, weight, and complexity from a previous, similar
project as the basis for estimating the same parameter or measurement for a current
projec

14. ■ Parametric Estimating
Parametric estimating uses a statistical relationship between relevant historical data
and other variables
■ Bottom-up Estimating
Bottom-up estimating is a method of estimating a component of work.The cost of
individual work packages or activities is estimated to the greatest level of specified
detail.The detailed cost is then summarized or “rolled up” to higher levels for
subsequent reporting and tracking purpose

15. ■ three-Point Estimating
Most likely (cM).The cost of the activity, based on realistic effort assessment for the
required work and any predicted expenses.
Optimistic (cO).The activity cost based on analysis of the best-case scenario for the
activity.
Pessimistic (cP).The activity cost based on analysis of the worst-case scenario for the
activity
Depending on the assumed distribution of values within the range of the three estimates the
expected cost, cE, can be calculated using a formula. Formula:
• triangular distribution. cE = (cO + cM + cP) / 3
• Beta distribution (from a traditional PERT analysis). cE = (cO + 4cM + cP) / 6

16. ■ Resserve analysis
Cost estimates may include contingency reserves (sometimes called contingency
allowances) to account for cost uncertainty
■ Cost of Quality
■ Project Management Software

17. Outputs
■ Activity cost Estimates
■ Project documents updates

18. Process 3:Determine Budget
■ Determine Budget is the process of aggregating the estimated costs of individual
activities or work packages to establish an authorized cost baseline.The key benefit of
this process is that it determines the cost baseline against which project performance
can be monitored and controlled
■ A project budget includes all the funds authorized to execute the project.The cost
baseline is the approved version of the time-phased project budget, but excludes
management reserves.

19. Inputs,Tools, Output

20. Input:
■ Cost Management Plan
■ Scope Baseline:
Project scope statement,WBS
■ Activity cost Estimates
■ Project Schedule
■ risk register
■ organizational Process Assets:
Cost budgeting-related policies, procedures, and guideline
Cost Budgeting tool
Reporting Method

21. Tools andTechnique
■ CostAggregation
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
theWBS (such as control accounts) and ultimately for the entire project.
■ Reserve Analysis
Budget reserve analysis can establish both the contingency reserves and the
management reserves for the project
■ Funding Limit reconciliation
The expenditure of funds should be reconciled with any funding limits on the
commitment of funds for the project.

22. Output
■ Cost Baseline
The cost baseline is the approved version of the time-phased project budget,
excluding any management reserves, which can only be changed through formal
change control procedures and is used as a basis for comparison to actual results

23. ■ Project Funding requirements
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
■ Project documents updates:
Risk register,
Activity cost estimates,
Project schedule.

24. Process 4: Control costs
■ ControlCosts is the process of monitoring the status of the project to update the
project costs and managing changes to the cost baseline.The key benefit of this
process is that it provides the means to recognize variance from the plan in order to
take corrective action and minimize risk
■ Updating the budget requires knowledge of the actual costs spent to date. Any
increase to the authorized budget can only be approved through the Perform
Integrated ChangeControl process

25. 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, byWBS
component, by activity, and in total for the project
■ Monitoring cost performance to isolate and understand variances from the approved cost
baseline
■ Monitoring work performance against funds expended
■ Preventing unapproved changes from being included in the reported cost or resource
usage
■ Informing appropriate stakeholders of all approved changes and associated cost
■ Bringing expected cost overruns within acceptable limits.

26. Inputs:
■ Project Management Plan:
Cost Baseline,Cost Management Plan
■ Project Funding requirements
■ Work Performance data
Work performance data includes information about project progress, such as which
activities have started, their progress, and which deliverables have finished.
Information also includes costs that have been authorized and incurred.
■ Organizational Process Assets:
cost control-related policies, procedures, and guidelines;

27. Tools andTechnique
■ EarnedValue Management
Earned value management (EVM) is a methodology that combines scope, schedule,
and resource measurements to assess project performance and progress
1. Planned value. Planned value (PV) is the authorized budget assigned to scheduled
work.
2. Earned value. Earned value (EV) is a measure of work performed expressed in terms
of the budget authorized for that work
3. Actual cost. Actual cost (AC) is the realized cost incurred for the work performed on
an activity during a specific time period

28. Outputs:
■ Work Performance Information
The calculated CV, SV, CPI, SPI,TCPI, andVAC values forWBS components, in particular the
work packages and control accounts, are documented and communicated to stakeholders.
■ Ccost Forecasts:
Calculated EAC value or a bottom-up EAC value
■ Change requests
■ Project Management Plan updates
■ Project documents updates:
Cost Estimates, Basis Estimates
■ Organizational Process Assets updates:
Cause of variances, Corrective Action, Financial Database