pmp cost formulas & cost process management overview in plain english (pmbok 5th edition). learn...

PMP Formulas & Cost Overview

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JONATHAN DONADO

…IN PLAIN ENGLISH

About me


Twitter.com/donadosays

Bilingual senior general management executive with expertise in international

business and Mergers & Acquisitions (M&A)

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o Education: - Senior Executive Fellow – Harvard University- MBA – IESE

o Certifications:- Six Sigma Black Belt (CSSBB) – ASQ Certified- PMP- PMI-ACP – Agile Certified Practitioner

Jonathan Donado

Instructions: PowerPoint

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Earned Value = EV

The value of the work accomplished until this point in time. Cost is as per the original

budget.

Introduction:

o Project Cost Management is the knowledge use for managing costs. Ithelps to ensure a project is completed within the approved budget

o It includes the processes involving in estimating, budgeting andcontrolling costs

o These processes interact with each other and with processes in theother nine knowledge areas as well

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Developing a Cost/Schedule System:


Define work using

a WBS

Create work and resource

schedules

Develop a time-phased budget

Collect Cost Data (at the work

package level)

Compute variances

o Scopeo Work packageso Deliverableso Organization unitso Resourceso Budgets

o Schedule resources to activities

o Time-phase work packages into a network

o Use work packages included in an activity. Accumulate budgets (PV).

o Use work packages included in an activity. Accumulate budgets (PV)

o Compute the schedule variance (EV-PV) and the cost variance (EV-AC)

Cost Relationships Overview:


Development of Project Baselines:


Purposes of a Baselineo It is an anchor point for measuring performance

o A planned cost and expected schedule against which actual cost and schedule are measuredo A summation of time-phased budgets (cost accounts as summed work packages) along a project timeline

What Costs Are Included in Baselines?o Labor, equipment, materials, project direct overhead costs (DOC)

Rules for Placing Costs in Baselineso Costs are placed exactly as they are expected to be “earned” in order to track them to

their point of origin

o Percent Complete Rule

o Costs are periodically assigned to a baseline as units of work are completed over the duration of a work package


o Project Manager can use the information about the project progress to help control the schedule and cost to assess whether the project is on track through earned value management (EVM)

o EVM uses Variance Analysis methodology

o Other alternative methods are:o Ask team members for a % of the work completed in each work

package or activity

o Team member provides a simple “guess” of work performed

Earned Value Management (EVM):

Methods of Variance Analysis in EVM:


Comparing Earned ValueoWith the expected schedule value

oWith the actual costs

Assessing Status of a ProjectoRequired data elements

o Budgeted cost of the work scheduled (PV)

o Budgeted cost of the work completed (EV)

o Actual cost of the work completed (AC)

oCalculate cost and schedule varianceso A positive variance indicates a desirable condition,

while a negative variance suggests problems or changes that have taken place


oCost Variance (CV)o Indicates if the work accomplished using labor

and materials costs more or less than was planned at any point in the project

oSchedule Variance (SV)oPresents an overall assessment in dollar terms

of the progress of all work packages in the project scheduled to date

Methods of Variance Analysis in EVM:


Project Cost Management:

ESTIMATECOST

DETERMINECOST

CONTROLCOST

The process involved in planning, estimating, budgeting, and controlling costs so that the budget can be completed within the approved budget

Developing an estimate of costs of

the resources needed to complete a project

Allocating overall cost estimate to

individual work items “cost baseline”

Controlling change to project budget

PLANNING MONITOR & CONTROL


Monitor & Control Costs : CONTROL COST

Cost Baseline

Project Funding Requirements

Performance Reports

Work Performance Information

Approved Change Requests

Project Management Plan

Cost Change Control System

Performance MeasurementAnalysis

Forecasting

Project Performance Reviews

Project Performance Software

Variance Management

Inputs Tools & Techniques Outputs

Cost Estimate Updates

Cost Baseline Updates

Performance Measurements

Forecasted Completion

Recommended Corrective Action

Organizational ProcessAssets Updates

Project Management PlanUpdates

o Monitor Cost Performanceo Ensure that changes are included in cost baselineo Inform stakeholders of authorized changes which impact cost


Cost Budget Breakdown:

Project Reserves

Not Used in Earned Value Calculations

Used in Earned Value Calculations

Cost Budget

Management Reserve

Cost Baseline

Contingency Reserve

Project

Control Account

Work Package

Activity

Tasks

Project

WB

S

Sch

ed

ule

Work Breakdown Structure Schedule Information

Budget Breakdown


Cost Budget Components:

Terms:


EV Earned value for a task is simply the percent complete times its original budget. Stated differently, EV is the percent of the original

budget that has been earned by actual work completed.

PV The planned time-phased baseline of the value of the work scheduled. An approved cost estimate of the resources scheduled in a

time-phased cumulative baseline [BCWS—budgeted cost of the work scheduled].

AC Actual cost of the work completed. The sum of the costs incurred in accomplishing work. [ACWP—actual cost of the work

performed].

CV Cost variance is the difference between the earned value and the actual costs for the work completed to date where CV = EV – AC

SV Schedule variance is the difference between the earned value and the baseline line to date where SV = EV – PV

BAC Budgeted cost at completion. Total budgeted cost of the baseline or project cost accounts.

EAC Estimated costs at completion.

ETC Estimated costs to complete remaining work.

VAC Cost variance at completion. VAC indicates expected actual over- or under-run cost at completion.

Terms:


Performance Indexes:

• Cost Performance Index (CPI)• Measures the cost efficiency of work accomplished to date.

• CPI = EV/AC

• Scheduling Performance Index (SPI)• Measures scheduling efficiency

• SPI = EV/PV

• Percent Complete Indexes• Indicates how much of the work accomplished represents of the

total budgeted (BAC) and actual (AC) dollars to date.

• PCIB = EV/BAC

• PCIC = AC/EAC

Terms:


Index Cost (CPI) Schedule (SPI)

>1.00 Under cost Ahead of schedule

=1.00 On cost On schedule

<1.00 Over cost Behind schedule


Cost /Schedule Graph:

Cost /Schedule Graphs:


SV = EV - PV

CV = EV - AC

EV


Earned Value = EV

The value of the work accomplished until this point in time. Cost is as per the original

budget.

“ As of today, what is the estimated value of the work

actually accomplished? “

PV


Planned Value = PV

Planned cost or value of the work to be done until this point

in time.

“ As of today, what is the estimated value of the work

planned to be done? “

AC


Actual Costs = AC

The costs actually incurred to complete the work until this

point in time.

“ As of today, what is the actual costs incurred for the work

accomplished? “

BAC


Budget At Completion = BAC

The total planned value or budget for completing the entire

project.

“ How much did we budget for the total project? “

CV

Cost Variance = CV

CV = EV - AC

o Positive is Under Budgeto Negative is Over budget


SV

Schedule Variance = SV

SV = EV - PV

o Positive is ahead of schedule

o Negative is behind schedule


CPI


Cost Performance Index = CPI

CPI =

o We are getting $___ worth out of every $1 spent.

o Greater than 1 is good; less than 1 is bad

EV

AC

SPI


Schedule Performance Index = SPI

SPI =

o We are progressing at ___% of the rate originally planned.

o Greater than 1 is good; less than 1 is bad

EV

PV

EAC


Estimate At Completion = EAC

Prediction of what project will cost when completed..

“ What do we currently expect the total project to cost (a forecast)? “

There are 4 types:

EAC = AC + Bottom up ETC

BACCPI

EAC = AC + (BAC – EV)

EAC =

EAC =(BAC – EV)(CPI x SPI)

Used when the original estimate was flawed

Used when there are no variances from BAC. Most common one for exam

Used when the current variances are “atypical” of the future

Used when the current variances are “typical” of the future

ETC


Estimate To Complete = ETC

From this point on, How much More do we expect it to cost to finish the

project ? (a Forecast)

How much more will the project cost?

ETC = EAC - AC

VAC


Variance At Completion = VAC

As of today, how much over or under budget will we be at the end of the

project ?

VAC = BAC - EAC

TCPI


To Complete Performance Index = TCPI

In order to stay within budget, what rate must we meet for the remaining

work?

TCPI =(BAC – EV)(BAC - AC)

o It divides the work remaining to be done by the money remaining to do it

o Greater than 1 is bad; less than 1 is good

Bilingual senior general management executive with expertise in international

business and Mergers & Acquisitions (M&A)

52

Connect with me


Twitter.com/donadosays

If you like the Flashcards, please give

a ”Like” on SlideShare. It’s much

appreciated !

o Education: - Senior Executive Fellow – Harvard University- MBA – IESE

o Certifications:- Six Sigma Black Belt (CSSBB) – ASQ Certified- PMP- Agile (ACP) – PMI Certified

Jonathan Donado

THANK YOU

pmp cost formulas & cost process management overview in plain english (pmbok 5th edition). learn...

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