This document provides an overview of project cost management based on the PMBOK Guide. It discusses the key processes involved, including plan cost management, estimate costs, determine budget, and control costs. For each process, it outlines the typical inputs, tools and techniques, and outputs. It also discusses important concepts like the cost management plan, cost baselines, earned value management, variance analysis, and estimating techniques. The overall purpose is to plan, estimate, budget, and control costs throughout the project life cycle.
3. KEY CONCEPTS FOR PROJECT COST MANAGEMENT
Project Cost Management is about:
• Concerned with the cost of the resources needed to complete project activities
• The effect of project decisions on the subsequent recurring cost of using, maintaining, and supporting the
product, service, or result of the project
• Recognizing that different stakeholders measure project costs in different ways and at different times.
• Address additional processes and numerous general financial management techniques such as return on
investment, discounted cash flow, and investment payback analysis.
TRENDS IN PROJECT COST MANAGEMENT
• Include the expansion of earned value management (EVM) to include the concept of earned schedule (ES).
4. TRENDS AND EMERGING PRACTICE IN PROJECT COST
MANAGEMENT
Cost of the resources needed to complete project activities.
Reoccurring cost of using, maintaining and supporting the product, service, or
result of the project
• Lifecycle costing
COST MANAGEMENT CONSIDERATIONS
• When the cost in incurred
• Decision is made
• Order is placed
• Item delivery
• Actual payment
• Interest, ROI, discounted cash flow, payback analysis.
5. TAILORING PROJECT COST MANAGEMENT
Knowledge management. Does the organization have a formal knowledge management and financial
database
repository that a project manager is required to use and that is readily accessible?
Estimating and budgeting. Does the organization have existing formal or informal cost estimating and
budgeting-related policies, procedures, and guidelines?
Earned value management. Does the organization use earned value management in managing projects?
Use of agile approach. Does the organization use agile methodologies in managing projects? How does
this
impact cost estimating?
Governance. Does the organization have formal or informal audit and governance policies, procedures,
and guidelines?
7. Project Cost Management Overview
Project Cost Management – all Process
7.1 Plan cost
Management
7.2 Estimate Cost
7.3 Determine
Budget
7.4. Control Cost
8. Project Cost Management Overview
Plan Cost Management
Inputs Tools & Technics Outputs
.1 Project charter
.2 Project management plan
• Schedule management plan
• Risk management plan
.3 Enterprise environmental
factors
.4 Organizational process assets
.1 Expert judgment
.2 Data analysis
.3 Meetings
.1 Cost management plan
9. Plan Cost Management
Plan Cost Management is the process of defining how the project costs will be estimated, budgeted, managed, monitored, and controlled.
The key benefit of this process is that it provides guidance and direction on how the project costs will be managed throughout the project.
Schedule management plan : process and controls that will impact cost estimation and management
Risk Management plan : process and controls that will impact cost estimation and management
Enterprise environmental factors :
• Culture and structure
• Market conditions
• Currency exchange rates
• Commercial Database
• Productivity in different level
Considerations / Inputs
Outputs : Cost Management Plan
Unit of measure
Level of precision
Level of Accuracy
Organizational procedure links
Control Thresholds
Cost estimating approach
Rules of performance measurement
Reporting formats
11. ESTIMATE PROJECT COST
Estimate Costs is the process of developing an approximation of the cost of resources needed to complete project work.
The key benefit of this process is that it determines the monetary resources required for the project.
Prediction based on current information
Cost tradeoffs and risks considered
- Cost vs buy
- Cost vs lease
- Sharing Resources
Level of Accuracy
- Rough order of magnitude estimate
- Budget estimate
- Definitive estimate
All categories of cost estimated
13. RISK AND COST ESTIMATING
Risk Register
Opportunity and Threat
Contingency reserve - [known-unknown risks]
Management reserve - [unknown-unknown risks] which affect time as well.
Scope Baseline in Cost Estimating
Scope Baseline includes :
Project Scope statement: Reflects funding constraints
WBS: shows relationships among the deliverables
WBS dictionary: identification of the deliverables and description of the work in each component
15. Cost Estimating Tools and Techniques
Analog Estimating technique
Creates an analogy
Use similar projects scope
Use already completed history projects scopes
Also called : Top-down Estimating.
Parametric Estimating technique
Math. parameters for estimating
Repetitive work
Learning Curve
Algorithm to calculate duration ( Time per unit, Square per meter, historical data etc…)
16. Cost Estimating Tools and Techniques
Three Point Estimating / Also called Triangular estimating
Finds an average of
O = Optimistic
M = Most Likely
P = Pessimistic
Using Bottom-Up Estimates
Bottom-up estimates starts from zero
Accounts for each component of the WBS
Creates a sum for the project
Most accurate estimate
Most time consuming and expensive estimate
PERT Estimating/ Also called Beta Distribution
Program Evolution and Review Technique
O = Optimistic
M = Most Likely
P = Pessimistic
Formulated as (O+4*M+P)/6
(5+4*10+20)/6 = 10.83
Formulated as (O+M+P)/3
(5+10+20)/3 = 11.66
17. ESTIMATING COSTS
Type of Cost
Fixed cost
Variable cost
Material Cost,
Supplies and wage
Cost which not changes.
Example: Cost of setup,
rent, utilities, etc…
Directly related to
project. Team wage
(salary), team travel,
material cost, etc…
Taxes, office rent,
fringe benefits,
janitorial servers etc…
18. Project Cost Management Overview
Determine Budget
Inputs Tools & Technics Outputs
.1 Project management plan
• Cost management plan
• Resource management plan
• 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 Enterprise environmental
factors
.6 Organizational process assets
.1 Expert judgment
.2 Cost aggregation
.3 Data analysis
• Reserve analysis
.4 Historical information review
.5 Funding limit reconciliation
.6 Financing
.1 Cost baseline
.2 Project funding
requirements
.3 Project documents
updates
• Cost estimates
• Project schedule
• Risk register
19. Determine Project 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.
Aggregating the estimated costs
Cost of work packages and activities
Authorized cost baseline
Excludes management reserves, includes contingency reserves
Pre-assigned budget
Relying of historical project data's
Both parametric and analogous are historical based estimates
The historical info affects the estimates
- Accuracy of historical information
- Quantifiable parameters
- Models are scalable for any size project
Finding Limit Reconciliation
Reconcile planned and actual cost
Cost variances
Corrective actions
21. Determine Project Budget (Creating Cost Baselines)
Measures performance
Predicts expenses over the project life
Usually shown as an S-curve
Predicts when the project will be spending monies
Discrepancies early are a signal that the project is slipping
May use multiple cost baselines for cots within each phase
Predict spending plans
Show cash flows of the project
Overall project performance
Large Projects
22. PROJECT FUNDING REQUIREMENTS
Cost Baseline helps to determine when the project will need cash
* phases
* Milestones
* Capital expenses
Project Funding requirements can be mapped to the project schedule
Project Step Funding
23. Project Cost Management Overview
Control Cost
Inputs Tools & Technics Outputs
.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 Organizational process assets
.1 Expert judgment
.2 Data analysis
• Earned value analysis
• Variance analysis
• Trend analysis
• Reserve analysis
.3 To-complete performance
index
.4 Project management
information system
.1 Work performance
information
.2 Cost forecasts
.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
24. CONTROL COST
Monitor status of the project
Check whether need to make change for Cost Baseline,
Variance Management and Corrective actions
Balancing project risk and reward
Cost Baseline maintained throughout the project
This process is performed throughout the project.
Influence change factors
Change requests,
Managing Changes (Approved/unapproved)
Tracking Cost
Isolate variances for study
Earned Value Management
Communicating cost status
Cost overruns and allowed variances.
Factors that need to Control Cost
25. MEASURING PROJECT PERFORMANCE
• Earned Value Management
• Forecast
• Measure Performance
• Suite of Formula’s
• A few project management questions
31. Project BAC $ 250,000
55% planned
EAC - Current Cost Performance
40% complete
Actual Cost
$ 112,000
Feature Work at planned cost formula (atypical)
EAC = AC + (BAC-EV)
EAC = 112K + (250K-100K)
EAC = 262K
Forecasts final project costs based on current performance
EAC = BAC / CPI
EAC = 250K / 0.89
EAC = 280K
Standard Formula
Current
Performance
32. Project BAC $ 250,000
55% planned
EAC : CPI and SPI factors considered
40% complete
Actual Cost
$ 112,000
EAC = AC + [(BAC-EV) / (CPI * SPI)]
EAC = 112K + [(250K-100K) / (0.89 * 0.73)
EAC = 342,769 $
Estimate at Completion (EAC)
Same efficiency rate for time and cost
EAC = BAC / CPI
EAC = 250K / 0.89
EAC = 280K
33. To Complete Performance Index
Can we meet the BAC ?
Can we meet the EAC ?
TCPI = (BAC-EV) / (BAC – AC)
TCPI = (BAC-EV) / (EAC – AC)
Project BAC $ 250,000
55% planned
40% complete
Actual Cost
$ 112,000
TCPI = (BAC-EV) / (BAC – AC)
TCPI = (250k-100K) / (250K – 112K)
TCPI = 1.09
TCPI = (BAC-EV) / (EAC – AC)
TCPI = (250k-100K) / (280K – 112K)
TCPI = 0.89
34. Good Luck !
Zaur Ahmadov, PMP®
IT / Telecom Project Manager
Email : zaur.ahmadov@gmail.com
Source used : PMBOK 6th Edition