Pmbok 4th edition chapter 7 - Project Cost Management

Download Pmbok 4th edition   chapter 7 - Project Cost Management

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I am Continuously seeking to improve my competencies and skills to provide first class professional Project Management training courses; and develop my scope experience in Project Management functions.I am confident that my innovative and results-focused approach would make significant contribution to the continued success of your organization.this is the first presentations uploaded to Slide Share, For more information do not hesitate to contact me.Ahmad H. Maharma - PMPRamallah, Palestine Phone: + (972) (2) 2968644Mobile: + (972) (599) 001155E-Mail: ahmad.maharma@gmail.com

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  • 1. CHAPTER7PROJECTCOSTMANAGEMENT Ahmad H. Maharma PMP
  • 2. PMKnowledgeAreas&ProcessGroupsPM Process Initiating Process Planning Process Group Executing Process Monitoring & Controlling ClosingGroups / Group Group Process Group ProcessKnowledge GroupArea ProcessesProject Develop Project Charter Develop Project Management Direct and Manage Project Monitor and Control Project Work Close ProjectManagement Plan Execution Integrated Change ControlIntegrationProject Scope Collect requirements Verify ScopeManagement Define Scope Control Scope Create WBSProject Time Define Activity Schedule ControlManagement Sequence Activity Estimating Resource Estimating Duration Develop ScheduleProject Cost Estimating Cost Control CostManagement Budgeting CostProject Quality Quality Planning Perform Quality Assurance Perform Quality ControlManagementProject HR Human Resources Planning Acquire Project TeamManagement Develop Project Team Manage Project TeamProject Identify Stakeholders Plan Communications Distribute Information Performance ReportingCommunications Manage stakeholdersManagement expectationsProject Risk Plan Risk Management Risk Monitoring and ControlManagement Risk Identification Qualitative / Quantitative Risk Analysis y Risk Response PlanningProject Plan procurement Conduct procurement Administer Contract CloseProcurement procurementManagement
  • 3. ProjectCostManagement Monitoring & Controlling Processes Planning Processes Enter phase/ Initiating Closing Exit phase/ Start project Processes Processes End project Executing Processes ProcessKnowledge Area Monitoring & g Initiating I iti ti Planning Pl i Executing E ti Closing Cl i Control Cost Estimating Cost Cost B d ti C t Budgeting Cost Control
  • 4. ProjectCostManagement
  • 5. ProjectCostManagementProjectCostManagementincludestheprocessesinvolvedinestimating,budgeting,andcontrollingcostssothattheprojectcanbecompletedwithintheapprovedbudget.Figure71providesanoverviewoftheProjectwithin the approved budget Figure 7 1 provides an overview of the ProjectCostManagementprocesseswhichincludethefollowing:7.1EstimateCosts Theprocessofdevelopinganapproximationofthemonetary7.1 Estimate CostsThe process of developing an approximation of the monetaryresourcesneededtocompleteprojectactivities.7.2DetermineBudgetTheprocessofaggregatingtheestimatedcostsof g p gg g gindividualactivitiesorworkpackagestoestablishanauthorizedcostbaseline.7.3ControlCostsThe processofmonitoringthestatusoftheprojecttoupdatetheprojectbudgetandmanagingchangestothecostbaseline.
  • 6. ProjectCostManagementThecostmanagementplancanestablishthefollowing: Levelofaccuracy.Activitycostestimateswilladheretoaroundingof thedatatoaprescribedprecision(e.g.,$100,$1,000), the data to a prescribed precision (e g $100 $1 000) basedonthescopeoftheactivitiesandmagnitudeoftheproject, andmayincludeanamountforcontingencies.Unitsofmeasure.Eachunitusedinmeasurements(suchasstaffhours,staffdays,weeks,orlumpsum)isdefinedforeachoftheresources. Organizationalprocedureslinks.Theworkbreakdownstructure(WBS) providestheframeworkforthecostmanagementplan, allowingforconsistencywiththeestimates,budgets, andcontrolofcosts.TheWBScomponentusedfortheprojectcost d t l f t Th WBS t d f th j t t accountingiscalledthecontrolaccount(CA).Eachcontrolaccountisassignedauniquecodeoraccountnumber(s)Each control account is assigned a unique code or account number(s)thatlinksdirectlytotheperformingorganizationsaccountingsystem.
  • 7. ProjectCostManagement Controlthresholds:Variancethresholdsformonitoringcostperformancemaybespecifiedtoindicateanagreeduponamountofvariationtobeallowedbeforesomeactionneedstobetaken. ti d t b t kThresholdsaretypicallyexpressedaspercentagedeviationsfromthebaselineplan. Rulesofperformancemeasurement.Earnedvaluemanagement(EVM)rulesofperformancemeasurementareset.Forexample,thecostmanagementplancould: Define the WBS and points at which measurement of control accounts will be performed DefinetheWBSandpointsatwhichmeasurementofcontrolaccountswillbeperformed, Establishtheearnedvaluemeasurementtechniques(e.g.,weightedmilestones,fixed formula,percentcomplete,etc.)tobeemployed,and Specifytheearnedvaluemanagementcomputationequationsfordeterminingthe projectedestimateatcompletion(EAC)forecastsandothertrackingmethodologies.
  • 8. ProjectCostManagement Reportingformats:Theformatsandfrequencyforthevariouscost reportsaredefined. Processdescriptions.Descriptionsofeachofthethreecostmanagement processesaredocumented.Allofthisinformationisincludedinthecostmanagementplan,acomponentoftheprojectmanagementplan,eitherastextwithinthebody t f th j t t l ith t t ithi th b doftheplanorasappendices.ThecostmanagementplanmaybeformalorThe cost management plan may be formal orinformal,highlydetailedorbroadlyframed,basedupontheneedsoftheproject.
  • 9. 7.1CostEstimating
  • 10. 7.1CostEstimating
  • 11. 7.1CostEstimating 7.1 Cost Estimating EstimateCostsistheprocessofdevelopinganapproximation y p ofthemonetaryresourcesneededtocomplete Costestimatesaregenerallyexpressedinunitsofsome currency(i.e.,dollars,euro,yen,etc.),althoughinsome instancesotherunitsofmeasure,suchasstaffhoursorstaff days, a e used to ac tate co pa so s by e days,areusedtofacilitatecomparisonsbyeliminatingthe at g t e effectsofcurrencyfluctuations. Costestimatesshouldberefinedduringthecourseofthe projecttoreflectadditionaldetailasitbecomesavailable. 11
  • 12. 7.1CostEstimating 7.1 Cost Estimating Theaccuracyofaprojectestimatewillincreaseastheproject p g progressesthroughtheprojectlifecycle. g p j y Hencecostestimatingisaniterativeprocessfromphaseto phase.Forexample,aprojectintheinitiationphasecould havearoughorderofmagnitude(ROM)estimateintherange o 50% of50%. Laterintheproject,asmoreinformationisknown,estimates couldnarrowtoarangeof10%.Insomeorganizations,there areguidelinesforwhensuchrefinementscanbemadeand thedegreeofaccuracythatisexpected. the degree of accuracy that is expected. 12
  • 13. 7.1CostEstimating 7.1 Cost Estimating Costsareestimatedforallresourcesthatwillbechargedto p j theproject. Thisincludes,butisnotlimitedto,labor,materials, equipment,services,andfacilities,aswellasspecial categoriessuchasaninflationallowanceorcontingencycosts. Acostestimateisaquantitativeassessmentofthelikelycosts forresourcesrequiredtocompletetheactivity. 13
  • 14. Table7 3.TypesofCostEstimates Table 73. Types of Cost Estimates Type of Estimate When Done Why Done How AccurateRough Order of Very early in the Provides rough 25%, +75%Magnitude (ROM) project life cycle, ballpark of cost for often 35 years selection decisions before j t b f project completionBudgetary Early, 12 years out Puts dollars in the 10%, +25% budget plansDefinitive Later in the project, < Provides details for 5%, +10% 1 year out purchases, estimate actual costs l 14
  • 15. Estimates Charter PlanPre-LaunchP L h Approval Launch L h Approval Execute Size Estimates (Macro) Task-based Estimates Project Schedule +/- 35% range +/- 15% range +/- 10% range 15
  • 16. Quality/AccuracyofCost Estimation Estimate AccuracyRough Order Most difficult to estimate as very little project infoof Magnitude +/- 50% is available, made during initiating process(ROM) -10% Used to finalize the Request for AuthorizationBudget (RFA), and establish commitment, made duringEstimateE i +25% planning phaseDefinitive -5% During the project and refinedEstimate 10%
  • 17. TypesofCost VariableCosts Changewiththeamountofproduction/work e.g.material,supplies,wages l l FixedCosts Donotchangeasproductionchange e.g.setup,rental DirectCosts Directlyattributabletotheworkofproject e.g.teamtravel,recognition,teamwages IndirectCosts Indirect Costs overheadorcostincurredforbenefitofmorethanoneproject e.g.taxes,fringebenefit,janitorialservices
  • 18. ProjectCostManagement The process involved in estimating, budgeting, and controlling cost so that the project can be completed within approved budget p j p pp g Life cycle costing Looking at the cost of whole life of the p g product ( (include maintenance) Value analysis (value engineering) Looking at less costly way to do the same work within the same scope Law Time value of money (depreciation) of Diminishing Returns E.g. will also affect the schedule to task may not get the task Cost adding twice resource done in vs Type of contract Cost risk vs. cost/time half
  • 19. 7.1CostEstimating 7.1 Cost Estimating Inputs 1.ScopeBaselineScopestatement.Thescopestatement(Section5.2.3.1)providestheproduct description,acceptancecriteria,keydeliverables,projectboundaries, assumptions,andconstraintsabouttheprojectWorkbreakdownstructure.TheprojectWBS(Section5.3.3.1)providesthe relationshipsamongallthecomponentsoftheprojectandtheproject p g p p j p j deliverables(Section4.3.3.1).WBSdictionary.TheWBSdictionary(Section5.3.3.2)andrelateddetailedWBS dictionary The WB...