PROJECT MANAGEMENT

Cost Management

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

Cost management

7.1 Plan Cost Management

Is the process that establishes the policies,

procedures, and documentation for planning,

managing, expending, and controlling project costs

Provides guidance and direction on how the project

costs will be managed throughout the project

7.1 Plan Cost Management

Analytical Techniques

Financial techniques are employed in these

decisions.

Techniques may include:

payback period

return on investment

internal rate of return

discounted cash flow

net present value

Cost Management Plan

Is a component of the project management plan

and describes how the project costs will be planned,

structured, and controlled

7.2 Estimate Costs

Is the process of developing an approximation of

the monetary resources needed to complete project

activities

Determines the amount of cost required to complete

project work

7.2 Estimate Costs

Reserve Analysis

Cost estimates may include contingency reserves

(sometimes called contingency allowances) to

account for cost uncertainty

Contingency reserves are often viewed as the part

of the budget intended to address the known-

unknowns that can affect a project

Cost of Quality (COQ)

Assumptions about costs of quality may be used to

prepare the activity cost estimate.

7.3 Determine Budget

Is the process of aggregating the estimated costs of

individual activities or work packages to establish

an authorized cost baseline

Determines the cost baseline against which project

performance can be monitored and controlled

7.3 Determine Budget

Cost Aggregation

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 the

WBS (such as control accounts) and ultimately for

the entire project

Funding Limit Reconciliation

The expenditure of funds should be reconciled with

any funding limits on the commitment of funds for

the project

A variance between the funding limits and the

planned expenditures will sometimes necessitate the

rescheduling of work to level out the rate of

expenditures

Cost Baseline

Is the approved version of the time-phased project

budget, excluding any management reserves

Can only be changed through formal change control

procedures

Is used as a basis for comparison to actual results

Project Budget Components

Project Funding Requirements

Total funding requirements and periodic funding

requirements are derived from the cost baseline

The cost baseline will include projected

expenditures plus anticipated liabilities

Funding often occurs in incremental amounts that are

not continuous

7.4 Control Costs

Is the process of monitoring the status of the project

to update the project costs and managing changes

to the cost baseline

Provides the means to recognize variance from the

plan in order to take corrective action and minimize

risk

7.4 Control Costs

Earned Value Management

Is a methodology that combines scope, schedule, and resource measurements to assess project performance and progress

EVM develops and monitors three key dimensions for each work package

Planned value (PV) is the authorized budget assigned to scheduled work

Earned value (EV) is a measure of work performed expressed in terms of the budget authorized for that work

Actual cost (AC) is the realized cost incurred for the work performed on an activity during a specific time period

Baseline Variances

Schedule variance (SV) is a measure of schedule

performance

SV = EV PV

Cost variance (CV) is the amount of budget deficit

or surplus at a given point in time

CV= EV AC

Efficiency indicators

Schedule performance index (SPI) is a measure of

schedule efficiency

SPI = EV/PV

Cost performance index (CPI) is a measure of the

cost efficiency of budgeted resources

CPI = EV/AC

Earned Value, Planned Value, and

Actual Costs

Forecasting

Budget at completion (BAC)

Estimate to complete (ETC)

Estimate At Completion (EAC)

EAC = AC + (BAC EV) performed at budget rate

EAC = BAC / CPI performed at cost index

EAC = AC + [(BAC EV) / (CPI SPI)] performed

at cost and schedule index

To-Complete Performance Index (TCPI)

Performance Reviews

Performance reviews compare cost performance

over time, schedule activities or work packages

overrunning and underrunning the budget, and

estimated funds needed to complete work in

progress

Variance analysis VAC = BAC EAC