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Session 3

THE PMP® EXAMPREP COURSE

PMI, PMP and PMBOK are registered marks of the Project Management Institute, Inc.

Agenda

9:00 – 10:15

10:15 – 10:30

10:30 – 12:00

12:00 – 12:45

12:45 – 2:15

2:15 – 2:30

2:30 – 4:00

Practice the PMP Exam Questions

Break

Cost Management Part 1 (Pass the PMP® Exam Ch. 5)

Lunch

Cost Management Part 2 (Pass the PMP® Exam Ch. 5)

Break

Quality Management (Pass the PMP® Exam Ch. 6)

2

Practice PMP Exam…

Chapters 5–6 The PMBOK® Guide

You have 50 questions

Mark each one as A, B, C, or D

You have 50 minutes to answer as many as possible –

in the exam you would have 1 hour

Good luck!

3


COST MANAGEMENT

Chapter 5 of Pass the PMP ® Exam

Chapter 7 of the PMBOK® Guide

Overview

Low

Medium

High

5

Cost Management

You will need to know all the formulas

All the formulas make sense – learn the logic

Write down all the formulas as soon as you are allowed to start writing in the exam

6

Cost Management

Links in very tightly with Scope and Time management

Initiating Planning ExecutingMonitoring &

ControllingClosing

Project Management Process GroupsKnowledge

Area

Processes

• Control Costs

Project Cost

Management

7

• Plan Cost

management

• Estimate

Costs

• Determine

Budget

Table 3-1. Project Management Process Groups and Knowledge Area MappingA Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition. ©2013 Project Management Institute, Inc. All rights reserved

.1 Inputs

.1 Project management plan

.2 Project charter

.3 Enterprise environmental factors

.4 Organizational process assets

.2 Tools and Techniques

.1 Expert Judgment

.2 Analytical techniques

.3 Meetings

.3 Outputs

.1 Cost management plan

.1 Inputs


.2 Scope baseline

.3 Activity cost estimates

.4 Basis of estimates

.5 Project schedule

.5 Resource calendars

.6 Agreements



.1 Cost aggregation

.2 Reserve analysis

.3 Expert judgment

.4 Historical relationships

.5 Funding limit reconciliation

.3 Outputs

.1 Cost baseline

.2 Project funding requirements

.3 Project document updates

Project Cost Management

7.1 Plan Cost Management 7.3 Determine Budget

.1 Inputs



.3 Work performance data



.1 Earned value management

.2 Forecasting

.3 To-complete performance index

(TCPI)

.4 Performance reviews

.5 Project management software

.6 Reserve analysis

.3 Outputs

.1 Work performance information

.2 Cost forecasts

.3 Change requests

.4 Project management plan updates



updates

7.4 Control Costs

8

7.2 Estimate Costs

.1 Inputs


.2 Human resource management plan

.3 Scope baseline

.4 Project schedule

.5 Risk register

.6 Enterprise environmental factors



.1 Expert Judgment

.2 Analogous estimating

.3 Parametric estimating

.4 Bottom-up estimating

.5 Three-point estimating

.6 Reserve analysis

.7 Cost of quality


.9 Vendor bid analysis

.10 Group decision making techniques

.3 Outputs




Figure 7-1. Project Cost Management OverviewA Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition. ©2013 Project Management Institute, Inc. All rights reserved

9

Inputs Tools and Techniques Outputs


.2 Project charter

.3 Enterprise environmental

factors


.1 Expert Judgment

.2 Analytical techniques

.3 Meetings


Plan Cost Management


10

• This is the process where you develop your cost

management plan which will guide you and the project

team in the development of individual cost estimates

and the project budget

• It will also provide guidance on how changes to the

project costs and budget will be managed.

Plan Cost Management

Variable Costs vs. Fixed Costs

Direct Costs vs. Indirect Costs

Sunk Costs

11

Cost Types

12



.2 Human resource management

plan

.3 Scope baseline

.4 Project schedule

.5 Risk register

.6 Enterprise environmental

factors


. 1 Expert Judgment

.2 Analogous estimating

.3 Parametric estimating

.4 Bottom-up estimating

.5 Three-point estimating

.6 Reserve analysis

.7 Cost of quality


.9 Vendor bid analysis

.10 Group decision making

techniques




Estimate Costs


May be performed multiple times

“Controlling definitely beats preliminary concepts by

an order of magnitude”

13

ESTIMATE TYPE ESTIMATE RANGE

Order of Magnitude Estimate -50% to +100%

Rough Order of Magnitude Estimate -25% to +75%

Conceptual Estimate -30% to +50%

Preliminary Estimate -20% to +30%

Definitive Estimate -15% to +20%

Control Estimate -10% to +15%

Estimate Costs

Analogous Estimating

Bottom Up Estimating

Parametric Estimating

Three-point estimates

You know these concepts from Time Management!

14

Cost Estimating Tools & Techniques


Reserve Analysis

– Management Reserve (Unknown Unknowns)

– Contingency Reserve (Known Unknowns)

Project management estimating software

Vendor bid analysis

15



Cost of Quality (COQ)

– Also used in Quality Planning

– Mirrored by Cost of Poor Quality (COpQ)

– Decisions to reduce quality rarely save costs. They usually transfer costs to other parts of the product lifecycle.

16



Estimate Costs Outputs

Activity Cost Estimates

Basis of Estimates

Project document updates

17


Cost vs. Budget

The difference is …..

Project costs are individual cost estimates for specific activities and work packages which when aggregated form a total project cost estimate.

The project budget are your project costs over time.

18

19

Project Management Institute, A Guide to the Project Management Body of Knowledge, (PMBOK® Guide) – Fifth Edition, Project Management Institute Inc., 2013, Page 213.

Determine Budget

21



.2 Scope baseline



.5 Project schedule


.6 Agreements


.1 Cost aggregation

.2 Reserve analysis

.3 Expert judgment

.4 Historical relationships


.1 Cost baseline




Determine Budget

Budget = Cost Baseline

The cost budgeting process time phases the costs so

that the performing organisation will know how to plan

for cash flow and likely expenditures

22

Determine Budget Inputs



.3 Scope baseline

.4 Project schedule


.6 Agreements

.7 Organisational process assets

23


Determine Budget Tools &

Techniques

.1 Cost aggregation

.2 Reserve analysis

.3 Expert judgment

.4 Historical relationship


24


25


Determine Budget Outputs

.1 Cost performance baseline - Specifies how much

and when



26


Costs and Budget

Control Costs

28







.2 Forecasting

.3 To-complete performance

index (TCPI)



.6 Reserve analysis

.1 Work performance

information

.2 Cost forecasts

.3 Change requests


updates



updates


Cost Control

Similar to other control areas we have covered to date,

i.e. scope and time control

The project manager is proactive

Measure actual against planned

Used to forecast future performance!

29

Cost Control Inputs





30


Cost Control Tools & Techniques


.2 Forecasting

.3 To-complete performance index (TCPI)


.5 Reserve analysis


31


Earned Value Technique

Method to measure project performance against the

project baseline (actual vs. planned)

Helps analyse and understand deviations

32

35


Figure 7-12. Earned Value, Planned Value, and Actual Costs

Real EV Data Example

A ‘three line graph’ based on real project data

For a real client (who didn’t really understand – make

sure you do!)

37

Project Status Report

38

0

200

400

600

800

1000

1200

1400

1600

1800

2000

2200

2400

2600

2800

BCWS

BCWP

ACWP

PVEV

AC

Earned Value Terms

BAC = Budget at Completion

– How much you originally planned for the project to cost

39

Earned Value Terms

PV = Planned Value (BCWS)– How much you planned to spend on what you planned to have

achieved

– The position you should be in at the present point in time

EV = Earned Value (BCWP)– How much you planned to spend on what you actually achieved

– The value of the work that has been completed at the present

point in time.

AC = Actual Cost (ACWP)– How much you actually spent on what you actually achieved

– The cost incurred at the present point in time.

40

Example

You are a project manager on a project to complete

15km of road. Your approved budget for the project is

$930,000, and you have forecast that the project will

take 35 weeks to complete. You are 13 weeks into the

project, and have constructed 7km of road at a cost of

$58,000 per km.

Use this information to calculate the following at the

present point of the project;

– Budget at Completion (BAC)

– Actual Cost (AC)

– Planned Value (PV)

– Earned Value (EV)

41

Earned Value Terms

EAC = Estimate at Completion

– How much it’s looking like it’s going to cost based on

what you’ve done so far

– There are four possible formulae;

– AC + ETC

– BAC/CPI

– AC+ (BAC-EV)

– AC+[(BAC-EV)/(CPIc x SPIc)]

42

Earned Value Terms

ETC = Estimate to Complete

– How much you still have to spend to get it done

VAC = Variance at Completion

– Difference between what you thought the project

would cost and what it actually ends up costing

43

Grouping

Group I

BAC

AC

PV

EV

44

Group II

CV = EV - AC

CPI = EV / AC

SV = EV - PV

SPI = EV / PV

Formulas – Cost Variance

CV = EV – AC

– The difference between what you’ve done should

have cost you and what it actually cost you

For example:

According to your project plan, you should spend $18

to make three widgets. You’ve produced three widgets,

but have spent $20. Your Cost Variance is -$2.

45

Formulas – Schedule Variance

SV = EV – PV

– The difference between how much you’ve

accomplished and how much you had planned to

accomplish by now

For example:

According to your project plan, at this point you should

have produced five widgets for a value of $30. You’ve

produced three widgets with a value of $18. Your

Schedule Variance is -$12.

46

Handy Hint

For Cost Variance and Schedule Variance, positive is

positive!

47

Formulas –

Schedule Performance Index

SPI = EV/PV

– The ratio of how much you’ve accomplished to how

much you planned to accomplish

For example:

You’ve produced three widgets worth $18. You should

have produced five widgets worth $30. Your Schedule

Performance Index is 0.6.

48

Formulas –

Cost Performance Index

CPI = EV/AC

– The ratio of how much it should have cost to how

much it actually cost for a given period of time

For example:

In September, you should have made three widgets at

a cost of $18. You spent $20 to make them. Your Cost

Performance Index for September is 0.9.

49

Formulas –

Cumulative CPI

Cumulative CPI = CPIc

– CPI from the beginning of the project, not just for any

given period of time

50

For example:

By now you should have made 10 widgets at a cost of

$30. You’ve made 10, but it cost you $40. Your CPIc

is

0.75.

Handy Hint

For Cost Performance Index and Schedule Performance

Index, greater than one is great!

51

More Handy Hints

Wherever EV is used in a formula it nearly always comes first

If it is a variance it is EV minus something

If it is an index it is EV divided by something

If the formula relates to cost use AC

If the formula relates to schedule use PV

52

Formulas - Estimate at Completion

EAC = one of four possible formulas!



– Several ways to calculate depending on the

information you have available – all very logical

53

Formulas - Estimate at Completion v1

EAC = BAC/CPI or BAC/CPIc

– Budget divided by your cost performance to date.

54

For example:

Your project was to create 300 widgets for $900.

Based on your CPI of 0.75, it will actually cost $1,200.


EAC = AC + ETC



55

For example:


You’ve created 100 widgets for $400, and you

estimate it will cost another $700 to create the next

200. Your EAC is $1,100.


EAC = AC + (BAC - EV)

– Take your total budget, remove the value you have

earned to date, and add you costs to date.

56

For example:


You’ve created 100 widgets with an actual cost of

$400, but an earned value of only $300, meaning you

still have $600 of value left to create. Your EAC is

$1,000.


EAC = AC + ((BAC - EV)/(CPIC x SPIC))

– Take your total budget, remove the value representing the work

you have actually achieved, divide that by an overall

performance indicator, and then add you costs to date.

57

For example:

Your project was to create 300 widgets for $900. You’ve

created 100 widgets with an actual cost of $400, but an

earned value of only $300. According to the plan, you

should have created 150 widgets by now. You still have

$600 of value left to create, but it will likely cost you

$1,200 to create that value. Your EAC is $1,600.

Formulas - Estimate to Complete

ETC = EAC - AC

– How much more it’s going to cost to finish it.

For example:

Based on your most current calculations, you expect it

will cost $100,000 to build your house. You’ve already

spent $60,000. Your ETC is $40,000.

58

Formulas - Variance at Completion

VAC = BAC – EAC

– The difference between how much you planned for

the project to cost, and how much you think it’s going

to cost now.

59

For example:

You hoped your house was going to cost $80,000, but

it’s actually looking like it’s going to cost $100,000.

Your VAC is –$20,000.

Control Costs - TCPI

The rate at which you have to go to achieve the desired

outcome.

Based on either EAC or BAC

– BAC: (BAC - EV) / (BAC - AC)

– EAC: (BAC - EV) / (EAC - AC)

This is the only time that less than 1 is good and

greater then 1 is bad

60

Control Costs Outputs


.2 Cost forecasts

.3 Change requests



.6 Organisational process assets updates

61

And now the big example . . .

You are the project manager on a project to build 40kms

of road at a cost of $10,000 per kilometre over 20 months

At 14 months into the project you have built 22kms of

road and spent a total of $205,000.

Calculate: BAC, AC, PV, EV, CV, CPI, SV, SPI, EAC, ETC

and VAC

Bonus points for using at least 3 different formulae for

EAC!

62

Answers

BAC = $400,000

AC = $205,000

PV = $280,000

EV = $220,000

CV = +$15,000

CPI = 1.07

63

SV = -$60,000

SPI = 0.78

EAC = BAC/CPI = $373,800

EAC = AC + ((BAC-EV)/(CPI x SPI))

=$421,860

ETC = Depends on which EAC you used

VAC = Depends on which EAC you used

Practice Questions

Pass the PMP® Exam, Page 155

64


QUALITY MANAGEMENT

Chapter 6 of Pass the PMP® Exam

Chapter 8 of the PMBOK® Guide

Overview

Low

Medium

High

66

Quality Management

Initiating Planning ExecutingMonitoring &

ControllingClosing

Project Management Process Groups

Knowledge

Area

Processes

• Plan Quality

Management

• Perform

Quality

Assurance

• Control

QualityProject

Quality

Management

67

Table 3-1. Project Management Process Groups and Knowledge Area MappingA Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition. ©2013 Project Management Institute, Inc. All rights reserved

Quality Management

Management of the degree to which a set of inherent

characteristics fulfills requirements

68

Quality Management

Prevention over inspection

It costs more to fix an error than to prevent one!

69

Quality vs. Grade

Grade refers to the amount of features a product has.

Low grade is fine, low quality is not

70

Precision & Accuracy

Precise

Precise & Accurate

71

Some Basic Concepts

Total Quality Management (TQM)

ISO 9000

Six Sigma

Kaizen

Just in Time (JIT)

72

.1 Inputs


.2 Stakeholder register

.3 Risk register

.4 Requirements documentation

.5.Enterprise environmental factors



.1 Cost-benefit analysis

.2 Cost of quality

.3 Seven basic quality tools

.4 Benchmarking

.5 Design of experiments

.6 Statistical sampling

.7 Additional quality planning tools

.8 Meetings

.3 Outputs

.1 Quality management plan

.2 Process improvement plan

.3 Quality metrics

.3 Quality checklists


.1 Inputs



.3 Quality metrics

.4 Quality control measurements

.5 Project documents


.1 Quality management and control

tools

.2 Quality audits

.3 Process analysis

.3 Outputs

.1 Change requests



.4 Organisational process asset

updates

Project Quality Management

8.1 Plan Quality

Management

8.2 Perform Quality

Assurance

.1 Inputs


.2 Quality metrics



.5 Approved change requests

.6 Deliverables






.3 Inspection

.4 Approved change requests review

.3 Outputs


.2 Validated changes

.3 Verified deliverables


.5 Change requests




updates

8.3 Control Quality

73

Figure 8-1. Project Quality Management OverviewA Guide to the Project Management Body of Knowledge (PMBOK® Guide) – Fifth Edition. ©2013 Project Management Institute, Inc. All rights reserved

74




.3 Risk register

.4 Requirements

documentation

.5.Enterprise environmental

factors

.6 Organizational process

assets


.2 Cost of quality


.4 Benchmarking



.7 Additional quality planning

tools

.8 Meetings



.3 Quality metrics



Plan Quality Management


Plan Quality Management

Identifying the quality specifications for the project

Development of:

– The quality management plan,

– The process improvement plan, and

– The configuration management plan

75


Plan Quality Inputs



.3 Risk register

.4 Requirements documentation

.5.Enterprise environmental factors


76


Plan Quality Tools & Techniques


.2 Cost of quality


.4 Benchmarking



.7 Additional quality planning tools

.8 Meetings

77


Plan Quality Outputs



.3 Quality metrics



78


79


.1 Quality management

plan

.2 Process improvement

plan

.3 Quality metrics

.4 Quality control

measurements


.1 Quality management

and control tools

.2 Quality audits

.3 Process analysis

.1 Change requests

.2 Project management

plan updates

.3 Project document

updates

.4 Organisational process

asset updates

Perform Quality Assurance



Steadily improving the activities and processes used to

achieve quality

80


Don’t confuse with Control Quality!

An executing process, not a control process

81

Perform Quality Assurance Inputs



.3 Quality metrics



82



Tools & Techniques

.1 Quality management and control tools

.2 Quality audits

.3 Process analysis

83



Outputs

.1 Change requests



.4 Organisational process asset updates

84


85



.2 Quality metrics




.6 Deliverables



assets



.3 Inspection


review

.1 Quality control

measurements



.4 Work performance

information

.5 Change requests


updates



assets updates

Control Quality


Control Quality

Looking at specific results to determine if they conform

to quality standards

“Quality” does not mean “good”! It means “fulfils

requirements”.

86

Control Quality Inputs


.2 Quality metrics




.6 Deliverables



87


Control Quality

Tools & Techniques



.3 Inspection

.4 Approved change requests review

88


7 Basic Quality Tools

Seven charts that shows quality information graphically

for easier understanding and analysis:

1. Cause and Effect/Fishbone/Ishikawa diagram

2. Control Chart

3. Check sheet

4. Scatter Diagram

5. Pareto Chart

6. Histogram

7. Flowchart

89

Cause & Effect - Ishikawa/Fishbone

Time Machine Method Material

Major

Defect

Energy Measurement Personnel Environment

Potential Causes Effect

90

Control Chart

Upper

Control

Limit

Lower

Control

Limit

X

Upper

Specification

Limit

Lower

Specification

Limit The ‘Rule of Seven’

7 consecutive points on one side of the

mean must be investigated to determine the

cause, as it threatens the mean amount

91

Check Sheet

92

• A standardized list of activities, process, and steps

that need to be completed during quality management

activities.

Scatter Diagram

93

Pareto’s Law, a.k.a.

‘The 80/20 Rule’

80% of the problems come from 20% of the causes

Focus improvement efforts on the 20% for biggest

results

94

Pareto Diagram

Frequency by Cause

Cumulative Percentage

95

Histogram

96

Sample Process Flowchart

No

YesNo

Yes Yes

No

12. Order

Materials

11. Specs Signed

(Package and QA)

10. Approved Proof

back to Vendor

9. QA

Review/

Approval

4. Artwork

Approved

2. Compliance

Copy

3. Develop

Artwork

1. Project

Request

6. Artwork

out for Proofs

5. Change

control for specs

7. Vendor

Makes Proofs

8.

Package

Dev’t Review/

Approval

97

Statistical sampling

Sampling a part of the total population and not the entire

population

Use when testing the entire population costs too much

or when destructive testing is involved.

98

Perform Quality Control Outputs




.4 Organisational process assets updates

.5 Change requests



99

Practice Questions

Pass the PMP® Exam, Page 182

100

Next Session

Starts with practice the PMP exam on today’s material

– Cost and Quality Management (please bring a

calculator)

Read chapters 9, 10 and 11 of the PMBOK® Guide

(and Appendix X3) or Pass the PMP® Exam, chapters

7, 8 and 9

Create your own PMP style multi-choice practice

question

101

pmp exam prep course - falcon training€¦ · the pmp® exam prep course pmi, pmp and pmbok are...

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