Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Project Management: Cost Management Knowledge Area

Project Mangement - overview of the Cost Management knowledge area within project management. Describes the 4 processes within Project Cost Management and the process groups impacted.

Blog: https://agile-mercurial.com
YouTube: https://www.youtube.com/channel/UCPM82of2YuqIR1SgLGHa1eg
Twitter: https://twitter.com/agile_mercurial
Tumblr: https://agilemercurial.tumblr.com/

  • Be the first to comment

  • Be the first to like this

Project Management: Cost Management Knowledge Area

  1. 1. PROJECT COST MANAGEMENT KNOWLEDGE AREA
  2. 2. COST MANAGEMENT KNOWLEDGE AREA OVERVIEW 7.1 Plan Cost management 7.2 Estimate costs 7.3 determine budget 7.4 control costs
  3. 3. COST MANAGEMENT KNOWLEDGE AREA OVERVIEW All the processes needed to work through a project within the confines of the budget. The cost baseline is created within this knowledge area’s processes.
  4. 4. 7.1 PLAN COST MANAGEMENT -PART OF THE PLANNING PROCESS GROUP This Photo by Unknown Author is licensed under CC BY-SA
  5. 5. PLAN COST MANAGEMENT PROCESS The process of planning how managing costs associated with the project will be planned and controlled
  6. 6. 7.1 PLAN COST MANAGEMENT  Part of the Planning Process Group  Establishes policies and procedures for planning, managing, and controlling project costs  OUTPUT:  Cost Management Plan
  7. 7. COST MANAGEMENT PLAN GUIDES THE ESTIMATION OF COSTS AND BUDGET CONSTRUCTION GUIDES THE PROPER USE OF SPENDING WITHIN THE PROJECT INCLUDED IN THE PROJECT MANAGEMENT PLAN
  8. 8. LIFECYCLE COSTING The cost of a product’s entire life expectancy Life expectancy value of resources purchased for a project that can be used in later projects or organizational activities
  9. 9. VALUE ENGINEERING / ANALYSIS Lower cost ways to do the same amount of work Can be brought on by process improvements or better resource purchasing conditions
  10. 10. 7.2 ESTIMATE COSTS -PART OF THE PLANNING PROCESS GROUP This Photo by Unknown Author is licensed under CC BY-SA
  11. 11. ESTIMATE COST PROCESS The development of estimates related to the anticipated costs of project activities
  12. 12. 7.2 ESTIMATE COSTS  Part of the Planning Process Group  Each activity’s cost must be estimated  Entire project cost is estimated  Products purchased, wages/labor, contingency reserves for delay
  13. 13. ESTIMATING COSTS – PROJECT INPUTS The Scope Baseline The Cost Management Plan Quality Management Plan The Project Schedule Resource Requirements Project Risk / Risk Register Lessons Learned Register Organizational Process Assets Enterprise Environmental Factors
  14. 14. ESTIMATING COSTS USING THE WBS CREATED IN THE PROJECT SCOPE MANAGEMENT KNOWLEDGE AREA CAN IMPROVE ESTIMATIONS ACTIVITY ESTIMATIONS SHOULD INCLUDE INPUT FROM THE PERSON DOING THE WORK PROJECT HISTORICAL INFORMATION / ORGANIZATIONS PAST PROJECTS SHOULD BE USED
  15. 15. FACTORS IMPACTING COSTS High quality / low quality impacts costs Increased risk factors Project complexity General project costs Training Project manager costs Required resources Other tangible resources
  16. 16. COST TYPES • Costs that can change with the amount of work output produced Variable Cost • Costs that do not change as the work output is increased Fixed Costs • Costs associated with producing project deliverables Direct Costs • Overhead costs that can be accrued by multiple projects (Program Costs, Organizational Operations) Indirect Costs
  17. 17. ESTIMATING COSTS One-Point Estimation Each estimator submits a cost estimate for the activity Parametric Estimation Using historical records to collect average costs for activities and using that as a basis to estimate current activities Analogous Estimation Similar activities are examined for their actual costs and used to estimate for the current activity Bottom-up Estimating Estimations done for each activity or work package, estimations are combined or rolled up to “Control Accounts” or group of work packages. Total project costs are found by combining “Control Accounts”
  18. 18. PERT ANALYSIS  Three cost estimates are provided for each activity  Optimistic Estimate (O) – Best case scenario for activity completion times  Most Likely Estimate (M) - The most likely completion time of the activity  Pessimistic Estimate (P) – Worst case scenario for activity completion duration  Using the average of the estimates to estimate the activity  Triangular Distribution  Beta Distribution  Used for time and cost estimates
  19. 19. ESTIMATION ACCURACY Rough Order of magnitude (ROM) Range of estimates between -25% and + 75% from actual costs Budge Estimates Fall in the Range of - 10% to + 25% from actual costs Definitive Estimates Range of estimates between -10% to +10% from actual costs
  20. 20. 7.3 DETERMINE BUDGET -PART OF THE PLANNING PROCESS GROUP This Photo by Unknown Author is licensed under CC BY-SA
  21. 21. THE DETERMINE BUDGET PROCESS Aggregating costs of activities or work packages together to create the project cost baseline
  22. 22. 7.3 DETERMINE BUDGET Part of the Planning Process Group Creates the cost baseline Activity risks need to be considered and cost reserves need to be placed into the estimates
  23. 23. COST RESERVES Contingency Reserve Reserve for handling known risks and is used as part of the risk management strategy Management Cost reserved for unexpected risks or changes
  24. 24. COST BASELINE The base estimated costs of the funds authorized for spending on the project Includes all estimated costs and contingency reserves but does not include management reserves
  25. 25. PROJECT BUDGET The project cost budget includes the cost baseline plus the management reserve
  26. 26. 7.4 CONTROL COSTS -PART OF THE MONITORING & CONTROLLING PROCESS GROUP This Photo by Unknown Author is licensed under CC BY-SA
  27. 27. THE CONTROL COSTS PROCESS The monitoring of the project expenditures throughout the project and handling changes to the cost baseline
  28. 28. 7.4 CONTROL COSTS  Part of the Monitoring & Controlling Process Group  Calculating the actual costs spend and measuring it against the cost baseline  Work to prevent changes or handle changes to the cost if they do occur
  29. 29. EARNED VALUE MANAGEMENT (EVM)
  30. 30. EARNED VALUE MANAGEMENT Can be used to measure the performance of the project against the baselines for scope, schedule, and costs This Photo by Unknown Author is licensed under CC BY-NC
  31. 31. EARNED VALUE MANAGEMENT Planned Value The planned or estimated value for planned work Earned Value (EV) The value of the work completed based on the estimated value Actual Cost (AC) The actual cost for the completed work
  32. 32. CALCULATING PV, EV, AC PV = % Planned Complete * Estimated Total Budget EV = % Actually Complete * Estimated Total Budget AC = Actual Cost of the Completed Work
  33. 33. VARIANCES Schedule Variance (SV) Measures the performance of the schedule Less than 0 indicates a project behind schedule Greater than 0 indicates a project ahead of schedule Cost Variance (CV) Measures the performance of the budget Less than 0 indicates a project is over budget Greater than 0 indicates a project that is under budget Schedule Performance Index (SPI) Measure of the efficiency of the project schedule Greater than 1 indicates a project is ahead of schedule Less than 1 indicates a project is behind schedule Cost Performance Index (CPI) Measure of the efficiency of the project costs Greater than 1 indicates a project that is under budget Less than 1 indicates a project that is over budget
  34. 34. CALCULATING VARIANCE • SV = EV – PVSchedule Variance (SV) • CV = EV – ACCost Variance (CV) • SPI = EV/PVSchedule Performance Index (SPI) • CPI = EV/ACCost Performance Index (CPI)
  35. 35. EARNED VALUE - FORECASTS Total budget for all work items in the project to bring them to completion Budget at Completion (BAC) Total estimated costs for completing all project work Estimate at Completion (EAC) Estimate to complete the project from this point forward Estimate to Complete (ETC) The forecasted completion costs of the project If VAC < 0 Project will be completed over budget If VAC > 0, Project will be completed under budget Variance at Completion (VAC) Gives an indicator of what efficiency is needed to complete the project in order to make up for past negative variances with the budget If TCPI < 0 Project will more easily complete within budget If TCPI > 0, Project will not be very easy to complete within budget To Complete Performance Index (TCPI)
  36. 36. EARNED VALUE - FORECASTS Estimate to Complete (ETC) • ETC is equal to the estimates of the remaining work items • OR • ETC = EAC - AC Estimate at Completion (EAC) • EAC = AC + ETC • If all ETC work will remain within the budgeted rate: • EAC = AC + (BAC – EV) • If the cost performance index is expected to remain persistent: • EAC = BAC/CPI
  37. 37. EARNED VALUE - FORECASTS Variance at Completion (VAC) • VAC = BAC – EAC To Complete Performance Index (TCPI) • Original budget completion requirement: • TCPI = (BAC – EV) / (BAC – AC) • Accommodating for past variances • TCPI = (BAC – EV) / (EAC – AC)
  38. 38. SOURCES A Guide to the Project Management Body of Knowledge – PMBOK 6th Edition https://www.pmi.org/ Joshua Render https://agile-mercurial.com

×