Cost Management Knowledge Area:
Project 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.
Project Cost Management is primarily
concerned with the cost of the resources needed to complete project activities.
The knowledge area of Project Cost Management consists of the following four processes:
Process
Name
|
Project
Management Process Group
|
Key
Deliverables
|
Plan Cost Management
|
Planning
|
Cost management Plan
|
Estimate Costs
|
Planning
|
Activity Cost Estimates, Basis of Estimates
|
Determine Budget
|
Planning
|
Cost Baseline
|
Control Costs
|
Monitoring and Controlling
|
Work Performance Information
|
Plan Cost Management process establishes the
policies, procedures, and documentation for planning, managing, expending, and
controlling project costs.
Cost management plan includes:
· Units of measure
· Level of precision
· Level of accuracy
· Organizational procedures links
· Control thresholds
· Rules of performance measurement
The Inputs, Tools and Techniques and Output
of Plan Cost
Management process are given below:
Project
Management Plan
|
Expert
Judgment
|
Cost
Management Plan
|
Project
Charter
|
Analytical
Techniques
|
|
Enterprise
Environmental Factors
|
Meetings
|
|
Organizational
Process Assets
|
|
|
Estimate
Costs
is the process of developing an approximation of funds needed to complete
project activities.
The project in the initiation phase has a
rough order of magnitude (ROM) -25% to +75%
Later with more information is knows,
definitive estimates could narrow the range of accuracy to -5% to +10%
Direct Costs are attributed directly to the project work
and cannot be shared among projects (wages, material, equipment, etc.).
Indirect Costs are overhead costs that incurred for
the benefit of more than one project (taxes, training, software licenses etc.).
Variable Costs vary depending on the amount of work
or production (cost of materials, supplies, wages, etc.).
Fixed Costs remain constant throughout the project (cost
of office setup, rentals, etc.).
Cost of quality includes all costs incurred over the
life of the product.
Contingency Reserves are used for known risks, which are
specifically identified risks.
Management Reserves are used to accommodate unknown risks,
or unidentified risks.
Rolling Wave is a common technique used to estimate
high-risk projects.
The Inputs, Tools and Techniques and Output
of Estimate
Costs process are given below:
Cost
Management Plan
|
Expert
Judgment
|
Activity
Cost Estimates
|
Human
Resource Management Plan
|
Analogous
Estimating
|
Basis of
Estimates
|
Scope
Baseline
|
Parametric
Estimating
|
Project
Documents updates
|
Project
Schedule
|
Bottom-up
Estimating
|
|
Risk
Register
|
Three-Point
Estimating
|
|
Enterprise
Environmental Factors
|
Reserve
Analysis
|
|
Organizational
Process Assets
|
Cost of
Quality
|
|
|
Project
Management Software
|
|
|
Vendor Bid
Analysis
|
|
|
Group
Decision Making Techniques
|
|
Determine
Budget
is the process of aggregating the estimated cost of individual activities or work
packages to establish an authorized cost baseline.
The cost baseline is
the approved version of the time-phased project budget.
Cost baseline includes all authorized budgets, but
excludes management reserves.
Cost baseline can only be changed through formal change
control procedures.
Project Cost performance will be measured against the
authorized budget.
Cost estimates are aggregated by work packages in accordance with the WBS.
The expenditure of funds should be reconciled with any funding limits on
the commitment of funds for the project.
Total
funding requirements
and periodic funding requirements (e.g., quarterly, annually) are derived from
the cost baseline.
The Inputs, Tools and Techniques and Output
of Determine
Budget process are given below:
Cost
Management Plan
|
Cost
Aggregation
|
Cost
Baseline
|
Scope
Baseline
|
Reserve
Analysis
|
Project
Funding Requirements
|
Activity
Cost Estimates
|
Expert
Judgment
|
Project
Documents updates
|
Basis
of Estimates
|
Historical
Relationships
|
|
Project
Schedule
|
Funding
Limit Reconciliation
|
|
Resource
Calendars
|
|
|
Risk Register
|
|
|
Agreements
|
|
|
Organizational
Process Assets
|
|
|
Control
Cost
is the process of monitoring status of the project to update the project budget
and managing changes to the cost baseline.
Monitoring cost performance to
isolate and understand variances from the approved cost baseline.
Cost
baseline compared with actual results.
Project cost
controls seeks out the causes of positive and negative variances and is
part of the Perform Integrated Change Control process
Earned value management (EVM) is a methodology that combines
scope, schedule, and resource measurements to assess project performance and
progress.
Forecasting involves making
projections of conditions and events in the project’s future based on current
performance information and other knowledge available at the time of the
forecast.
To-Complete
Performance Index (TCPI) is a measure of the cost performance that is required to
be achieved with the remaining resources in order to meet a specified
management goal.
AC is the actual cost
incurred
Earned
Value EV
value of the work actually accomplished
Planned
Value (PV)
is the value of the work planned to be done.
CPI refers to Cost Performance Index. It is defined as CPI = EV/AC (If CPI is less than 1, this means that the
project is over budget).
SPI refers to Schedule Performance Index. It is defined as SPI = EV/PV
Budget
at Completion (BAC)
funds you have BUDGETED for the total Job. EAC = BAC/CPI
Estimate
at Complete (EAC)
current total expectation of project cost.
Estimate
to Complete (ETC)
from now on, how much MORE do we expect it to cost to finish the project.
ETC = EAC - AC
Variance
at Completion (VAC)
how much over or under budget do we expect it to be. VAC = BAC - EAC
The calculated CV, SV, CPI, SPI, TCPI, and
VAC values for WBS components, in particular the work packages and control
accounts, are documented and communicated to stakeholders.
If the schedule is inflexible, then the only
possible tradeoffs available to the project manager may be cost versus quality.
The following will help you answer over 8
questions on the exam:
1.
CV =
EV – AC
2.
SV =
EV – PV
3.
CPI =
EV/AC
4.
SPI =
EV/PV
5.
BAC =
Sum total of all the planned values
6.
EAC =
BAC / CPI
7.
EAC =
AC + ETC -- Initial Estimates are flawed
8.
EAC =
AC + BAC - EV -- Future variance are Atypical
9.
EAC =
AC + (BAC - EV) / CPI -- Future Variance would be typical
10. ETC = EAC - AC
11. % of work complete - EV/ BAC
12. VAC = BAC – EAC
13.
Formula for To-Complete Performance Index
(TCPI),
TCPI = (Work
Remaining)/(Budget Remaining)
This formula can be
interpreted in two ways:
If you’re under budget
TCPI =
(BAC–EV)/(BAC–AC)
If you’re over Budget
TCPI =
(BAC–EV)/(EAC–AC)
The Inputs, Tools and Techniques and Output
of Control
Costs process are given below:
Project
Management Plan
|
Earned Value
Management
|
Work Performance
Information
|
Project Funding
Requirements
|
Forecasting
|
Cost Forecasts
|
Work
Performance Data
|
To-Complete
Performance Index (TCPI)
|
Change Requests
|
Organizational
Process Assets
|
Performance
Reviews
|
Project
Management Plan Updates
|
|
Project
Management Software
|
Project Documents
updates
|
|
Reserve Analysis
|
Organizational
Process Assets updates
|
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