Lecture 06 project_cost_management

PROJECT MANAGEMENT, PMI APPROACH (PMP)PROJECT COST MANAGEMENT

Sayed AhmedBSc. Eng. in CSc. & Eng. (BUET, Bangladesh)MSc. in CSc. (University of Manitoba, Canada)http://sayed.JustEtc.nethttp://www.JustETC.net

[email protected], www.justEtc.net1

Just E.T.C for Business, Education, Technology, and Entertainment Solutions

Resources:Book: PMP in Depth by Dr. Paul Sanghera Book: The PMP Exam, How to Pass on Your First Try By Andy CroweProject Management Lessons in Undergraduate StudyWork Experience

http://sayed.justetc.net/

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[email protected], www.justEtc.net

WHAT DOES COST INVOLVE? Costing Involves

Cost to purchase, develop i.e. to have the system

Operation cost Cost to disposal

Value Engineering Get the most from a project

Decrease cost Increase value Increase quality Shorten schedule Keep project scope not reduced

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COST ESTIMATING When cost estimation is done?

After project scope is defined and work breakdown structure is created But may be performed again and again

over the total life cycle

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COST ESTIMATING Tools

Analogous Estimating Based on the similar actual projects

Bottom up estimating Estimate cost for each activity and sum them - time

consuming Parametric Estimating

1 mile road construction needs $400,000. So 10 miles will require $10*400,000

Reserve Analysis A buffer cost against slippage on the project

Cost of Quality Costs required in order to get quality

Output Activity Cost Estimates

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COST BUDGETING Cost Budgeting

Maps costs and dates How much will be spent on what and when Also, termed Cost Baseline

When is cost budgeting done? After

activities are defined and scheduled Activity durations and resource requirements are also

estimated

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COST BUDGETING Tools

Cost Aggregation Activity level costs should be aggregated to the work level

where they will be measured, managed, and controlled Reserve Analysis

Financial reserve to protect projects against cost overrun Parametric Estimating

Use simple straight forward formulas Funding Limit Reconciliation

Comply with the project funding Many times funds are allocated even before the scope is

defined Output

Cost Baseline Project Funding requirements

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COST CONTROL Cost Control

Monitoring, controlling, adjusting costs When is it performed?

Over the whole life cycle Bi-weekly or monthly analysis may be done

Tools Cost Change Control System

How the cost baseline may be changed Performance Measurement Analysis

Calculate Earned Value, Planned Value, Actual Cost, Estimate to complete, Estimate at Completion, Cost Performance Index and similar

to measure performance and control costs based on these Forecasting

Use current and previous cost values to estimate future costs Variance Management

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COST CONTROL Output

Cost Estimate Update Cost Baseline Update

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COST MANAGEMENT TERMS Earned Value

The value the spent money brought to the project Just like double entry accounting system

for every debit to an account there is a corresponding credit Budgeted at Completion (BAC)

How much was originally planned for this project Planned Value (PV)

Calculates how much of the project should be complete at a certain date according to the plan

Planned Value = Planned%complete*BAC Earned Value (EV)

How much is actually done during a period EV=Actual%Complete*BAC

Actual Cost Money spent over the period

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COST MANAGEMENT TERMS Cost Variance (CV)

Difference between planned cost and actual cost. CV = EV – AC

Schedule Variance (SV) Difference between the planned schedule and actual schedule (as:Where the project is in the schedule). SV=EV-PV

Cost Performance Index (CPI) The rate at which the project cost is performing regarding cost

expectations CPI is done for a given period of time. CPI = EV/AC

Cumulative CPI It's the CPI from the project start time to a particular point in

time. CCPI = CEV/CAC

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COST MANAGEMENT TERMS Schedule Performance Index (SPI)

The rate at which the project is performing in respect of schedule expectations up to a point in time

SPI=EV/PV Estimate at Completion (EAC)

Forecast the total cost at project completion based on the project performance up to a point in time.

EAC = BAC/CCPI Estimate to Completion (ETC)

How much more will be spent to complete the project based on past performance.

Variance at Completion (VAC) Difference between what was budgeted and what will actually be

spent. VAC = BAC - EAC

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PROJECT COST MANAGEMENT Project managers need to calculate these

values to get a good understanding of the project cost

He can get answers to questions like How much is spent? How much more are required? Is the project progress satisfactory in terms of

cost? These will ultimately help in project cost

control

Lecture 06 project_cost_management

Technology

Transcript of Lecture 06 project_cost_management