SEESION 6

Project Cost Management

[Link] Mirghani
 Project Cost Managements

It includes the processes involved in:

• planning
• estimating
• budgeting
• financing
• managing, 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 project activities [Link] Mirghani
[Link] Mirghani
 7.1 Plan Cost Managements

Definition Key Benefit

THE process that establishes: • it provides guidance and

direction on HOW the project
• the policies
costs will be managed
• procedures throughout the project
• documentation
for planning, managing,
expending, and controlling
project costs.
[Link] Mirghani
.1 Project mgt
plan
.2 Project charter 1 Expert 1 Cost mgt. plan
.3 EEFs judgment
.4 OPAs 2 Meetings
3 Analytical
Techniques

[Link] Mirghani
[Link] Mirghani
 INPUTS

1 Project mgt. plan (analysis subsidiary plans)

• Scope baseline includes the project scope statement and the WBS
details for cost estimation and mgt.
• Schedule baseline defines when the project costs will be incurred.
2 Project charter
• provides the summary budget from which the detailed project
costs are developed
3 EEF
(e.g. Currency exchange rates)

[Link] Mirghani
 OUTPUTS

1 Cost management plan

• Level of accuracy
• Level of precision
• Units of measure (such as staff hours, staff days)
• Control thresholds.
• Rules of performance measurement
• Process descriptions
• Reporting formats

[Link] Mirghani
 7.2 Estimate Costs

Definition Key Benefit

The process of : • it determines the amount of

cost required to complete
• developing an approximation
project work
of the MONETARY resources
needed to complete project
activities

[Link] Mirghani
1 Cost mgt plan
.2 HR mgt plan
.3 Scope baseline 1 Activity cost
.4 Project schedule 7 Cost of quality estimates
.5 Risk register .8 Project mgt .2 Basis of
.6 EEF software estimates
.7 OPA .9 Vendor bid .3 Project
analysis documents
.10 Group updates
decision-making
tech.

[Link] Mirghani
[Link] Mirghani
 INPUTS

.2 HR mgt. plan .6 Risk register

• Personnel rates, rewards/recognition (Threats / opportunities usually increase or
.3 Scope baseline decrease the cost)
Project scope statements (assumptions .7 EEF
direct/indirect cost and constraints • Market conditions (supply/demand,
limited budget) resources availability…)
WBS • Published commercial info. (Resource
WBS dictionary cost rate).
.5 Project schedule .8 OPA
• type and quantity of resources and the Historical information,
amount of time which those resources Lessons learned
are used Cost estimating template
• Activity duration , IR/seasonal resources
Impact the cost

[Link] Mirghani
 Tools and Techniques

[Link] Management Software

oused to assist with cost estimating.
osimplify the use of some cost-estimating techniques
oto facilitate the cost estimate alternatives.
oe.g. computerized spreadsheets, simulation
.9 Vendor Bid Analysis
analysis of what the project should cost, based on the responsive
bids from qualified vendors

[Link] Mirghani
 OUTPUTS

.1 Activity cost estimates

• quantitative assessments of the probable costs required to
complete project work
• Costs are estimated for all resources that are applied to the
activity
.2 Basis of Estimates
• all assumptions made,
• any known constraints,
• Indication of the confidence level of the final estimate.
.3 Project documents updates
• [Link] register
[Link] Mirghani
 7.3 Determine Budget

Definition Key Benefit

• The process of : • it determines the cost

baseline against which
AGGREGATING the estimated
project performance can be
costs of individual activities or
monitored and controlled
work packages to establish an
authorized cost baseline

[Link] Mirghani
 Project Budget & Cost Baseline
• A project budget includes all • * one of 3 BLs
the funds authorized to • is the approved version of
execute the project the time-phased project
budget, but excludes
management reserves.
• Cost baseline+ mgt
reserves= project budget .

[Link] Mirghani
.1 Cost mgt plan
.2 Scope baseline
.3 Activity cost
estimates
.4 Basis of .1 Cost .1 Cost baseline
estimates aggregation .2 Project funding
.5 Project schedule .2 Reserve analysis requirements
.6 Resource .3 Expert .3 Project
calendars judgment documents
.7 Risk register .4 Historical updates
.8 Agreements relationships
.9 OPA .5 Funding limit
reconciliation

[Link] Mirghani
[Link] Mirghani
[Link] Mirghani
 Tools and Techniques

1 Cost aggregation
.2 Reserve analysis
• the contingency reserves and the management reserves for the project.
.4 Historical relationships
• used to develop mathematical models to predict total project costs.
• cost per square foot of space
.5 Funding limit reconciliation
• A variance between the funding limits and the planned expenditures will
sometimes necessitate the rescheduling of work to level out the rate of
expenditures.

[Link] Mirghani
Project Budget Components

[Link] Mirghani
Cost Baseline, Expenditures, and
Funding Requirements

[Link] Mirghani
 OUTPUTS

.1 Cost baseline
The approved version of the time-phased project budget,
excluding any management reserves.
.2 Project funding requirements
• Total and periodic funding requirements
• It appears as steps
• THE TOTAL FUNDS :cost baseline plus management reserves.
.3 Project documents updates
• Risk register, Activity cost estimates, and Project schedule.

[Link] Mirghani
 7.4 Control Cost

Definition Key Benefit

The process of : • it provides the means to

recognize variance from the
• MONITORING the status of the
plan in order to take
project to update the project
corrective action
costs and managing changes to
the cost baseline.

[Link] Mirghani
 .1 WPI
.2 Cost forecasts
.1 Earned value mgt
.3 Change requests
.2 Forecasting
.1 Project mgt plan .4 Project mgt plan
.3 To-complete
.2 Project funding performance index updates
requirements (TCPI) .5 Project
.3 WPD .4 Performance documents
.4 OPA reviews updates
.5 Project mgt .6 OPAs updates
software
.6 Reserve analysis

[Link] Mirghani
[Link] Mirghani
 INPUTS

.1 Project mgt plan

• Cost baseline (actual results Vs plan)
• Cost mgt. plan describes how the project costs will be managed
and controlled
.2 Project funding requirements
• include projected expenditures plus anticipated liabilities
.3 WPD
• includes costs that have been authorized and incurred

[Link] Mirghani
 Tools and Techniques

1 Earned Value Management

• combines scope, schedule, and resource measurements to assess
project performance and progress
.2 Forecasting (BAC,ETC)
.3 To-complete Performance Index (TCPI)

[Link] Mirghani
 Tools and Techniques
4 Performance Reviews
• measure, compare, and analyze schedule performance e.g. actual
start and finish dates, percent complete..techniques used:
oTrend analysis
oVariance Analysis
oEarned value performance
.5 Project Management Software
• to monitor the three EVM dimensions (PV, EV, and AC)
• display graphical trends
• forecast a range of possible final project results
.6 Reserve Analysis
• to monitor the STATUS of contingency and management reserves
[Link] Mirghani
 Budget
Planned Value

Cost
Actual Cost

Achievement
Earned Value

now time

•Are we ahead or behind schedule?

•Are you getting value for money?
•Did you spend money on the right things?
 Planned Value

Actual Cost

Earned Value

now time
 Planned Value

Earned Value

Actual Cost

now time
 PMR Project Management Reserve
BAC: PV
Budget At Complete

SV < 0
AC CV = EV – AC
Cost Variance SV > 0

SV = EV – PV CV < 0
Schedule Variance
CV > 0
EV
project now project time
start end
Schedule Variance SV = EV–PV In currency. Negative means delay

Schedule Performance Index SPI = EV/PV < 1 means delay

Cost Variance CV = EV-AC In currency. Negative means

overcost.
Cost Performance Index CPI = EV/AC < 1 means overcost

Estimate At Completion EAC = BAC / CPI, Forecast final cost

= AC + BAC – EV
= AC + Bottom-up ETC,
= AC + [(BAC – EV)/ (CPI x SPI)]

To Complete Performance Index TCPIBAC = (BAC-EV)/(BAC-AC) Can we catch up?

 OUTPUTS
.1 WPI .4 Project Mgt Plan Updates
• CV, SV, CPI, SPI, TCPI, and VAC oCost Baseline Updates.
in particular WP and control oCost management plan
accounts
.5 Project Documents Updates
.2 Cost Forecast
Cost estimates
Either a calculated EAC value or
Basis of estimates
a bottom-up EAC value is
documented and communicated .6 OPA updates
to stakeholders • Causes of variances,
• Corrective action chosen and
the reasons, and
• lessons learned
[Link] Mirghani
Quiz
• The EV measurement of work you planned to have accomplished at a
given point in time :
a. BCWP
b. ACSP
c. BCWS
d. ACWS
• True or False: At any point in time, the SPI tells you exactly how far
ahead or behind schedule you are on your project.
a. TRUE
b. FALSE

[Link] Mirghani
Quiz
• If EV is 20 pm and AC is 15 pm, CPI:
a. .75
b. 1.33
c. 1.0
d. 0
• If EV is 27 pm PV is 25 pm, you are probably:
a. On schedule
b. Ahead of schedule
c. Behind schedule
d. None of the above

[Link] Mirghani
Questions !!
ANY

[Link] Mirghani
Thanks for your
attention!!

[Link] Mirghani