7. PROJECT COST MANAGEMENT Flashcards
PROJECT COST MANAGEMENT INCLUDES :
PLANNING, ESTIMATING, BUDGETING, FINANCING, FUNDING, MANAGING, CONTROLLING COST to complete the
Project.
7.1 PLAN COST MANAGEMENT
Process of defining how Project cost will be ESTIMATED, BUDGETED, MONITORED, MANAGED & CONTROLLED.
7.2 ESTIMATION COST
Process of developing APPROXIMATE MONETARY RESOURCES needed to complete Project.
7.3 DETERMINE BUDGETARY COST
Process of aggregating estimated cost of individual activities or work package to establish an authorized cost baseline.
7.4 CONTROL COST
Process of monitoring the status of Project to update the Project cost and manage the changes to cost baseline.
PROJECT COST MANAGEMENT OVER VIEW.
7.1 PLAN COST MANAGEMENT:
Input:
1. Project Charter.
2. Project management plan
* Schedule management plan
* Risk management plan
3. Enterprises environmental factors.
4. Organizational process asset.
Tools & Techniques:
1. Expert Judgement.
2. Data Analysis
3. Meetings.
Output:
1. Cost management plan.
7.2 ESTIMATE COST.
Input:
1. Project management plan.
* Cost management plan
* Quality management plan
* Scope baseline.
2. Project documents
* Lesson learned register
* Risk register
* Resources requirements.
* Project schedules.
3. Enterprises Environmental factors.
* Market conditions.
* Planned commercial
information
* Exchange rates & Inflation
4. Organizational process asset.
* Cost estimating policies.
* Cost estimating templates.
* Historical information and
lessons learned repository.
Tools & Technique:
1. Expert judgement
* Previous similar project.
* Information in industry,
discipline application area
* cost estimating methods.
2. Data analysis
* Alternative analysis
* Reserve analysis
* cost of quality
3. Analogous estimating
4. Parametric estimating
5. Bottom up estimating
6. Three point estimating.
7. Project management information
system
8. Decision making.
* voting
Outputs:
1. Cost estimates
2. Basis of estimates.
*Documentation of basis of estimate.
* Documentation of all assumption
made
* Documentation of known
constraints
* Documentation of identified risk
included
* Indication of range of possible
estimates.
* Indication of confidence level of
final estimate.
3.Project documents updates.
* Assumption log.
* Lesson learned register
* Risk register
7.3 Determine Budget
Inputs:
1. Project management plan.
* Cost management plan.
* Resources management plan
* Scope baaseline.
2. Project documents
* basis of estimate
* cost estimate
* Project schedule.
* risk register,
3. Business documents
* business case
* business management plan.
4. Agreements
5. Enterprises environmental factors.
6. Organizational process assets.
* existing formal & informal cost
budgeting related policies,
procedures and guidelines.
* Historical information and
lesson learned repository.
* cost budgeting tools
* reporting methods.
Tools & Techniques
1. Expert judgement
* Previous similar projects.
* Information in industry, discipline
and application area
* Financial principles.
* Financial requirements and
sources.
2. Data Analysis
*reserve analysis
3. Cost aggregation
4,. Historical information review
5. Funding limit reconciliation.
6. Financing
Outputs:
1. Cost Baseline
2. Project Funding requirements
3. Project documents updates
* cost estimate
* Project schedule.
* risk register
7.4 Control Cost:
Inputs:
1. Project management plan.
* cost management plan
* cost baseline
*performance measurement
baseline.
2. Project documents
* lessons learned register.
3. Work performance data
4. Organizational process asset
Tools & Techniques:
1. Expert judgment.
2. Data analysis
* Earned value analysis
* reserve analysis
* variance analysis
* Trend analysis,
3. To complete performance index
4. Project management
information system.
Outputs:
1. Work performance information.
2. Cost forecasts.
3. Change requests.
4. Project management updates.
* cost management plan
* cost baseline
* performance measurement
baseline.
5. Project documents updates.
* Assumption log
* basis of estimate
* cost estimate.
* lesson learned register
* risk register.
KEY CONCEPTS FOR PROJECT COST MANAGEMENT
- Cost of resources needed to complete the Project.
- Effect of Project decision on subsequent recurring cost of analyzing, maintaining and supporting Product, service or result of the Project.
- Different stake holders measure project cost in different way and at different times.
- Predicting and analyzing prospective financial performance of project’s product is performed outside of the Project.
-Financial management techniques are return on investment, investment of payback analysis. discounted cash flow.
TRENDS AND EMERGING PRACTICES IN PROJECT COST MANAGEMENT
Earned value management (EVM)
Earned Schedule (ES)
SCHEDULE VARIANCE = EARNED
SCHEDULE- ACTUTAL TIME
SCHEDULE PERFORMANCE INDEX = ES/ AT.
Earned schedule Theory provide formula for
forecasting Project completion date, using earned schedule (ES), actual time(AT) and estimated duration.
TAILORING CONSIDERATION
Project manager may need to tailor the way of Project cost management Process are applied.
- KNOWLEDGE MANAGEMENT
2, ESTIMATING AND BUDGETING - EARNED VALUE MANAGEMENT
- AGILE APPROACH
- GOVERNANCE
7.1.1PLAN COST MANAGEMENT :
INPUTS
7.1.1.1 PROJECT CHARTER
Provide preapproved financial resources from which detailed project cost will be developed.
7.1.1.2 PROJECT MANAGMENT PLAN
- SCHEDULE MANAGEMENT PLAN:
activities for DEVELOPING, MONITORING & CONTROLLING the schedule.
- RISK MANAGMENT PLAN:
IDENTIFYING, ANALYSING & MONITORING
risk.
7.1.1.3 ENTERPRISE ENVIRONMENTAL FACTORS:
- Organizational culture & structure
- Market Condition.
- Currency Exchange.
- Published commercial information :
Cost rate information available from
commercial data base for human
resources cost, material & plant cost.
Seller price list
- Project management information system.
- Productivity difference in different parts of
world.
7.1.1.4; ORGANIZATIONAL PROCESS ASSET:
- Financial control
- Financial data base
- Historical data base and lesson learned
repository.
- Existing formal & informal cost
estimating & budgeting procedures,
policies & guidelines.
7.1.2: PLAN COST MANAGEMENT :
TOOLS & TECHNIQUES.
7.1.2.1 EXPERT JUDGEMENT:
- Previous similar Project.
- Knowledge in industry, discipline and
application area. - Cost estimating and budgeting.
- Earned value management.
7.1.2.2 : DATA ANALYSIS
- Not limited to alternatives analysis.
- Strategic funding options: self funding,
funding with equity, funding with debt.
- Option of acquiring resources making,
purchasing, renting or leasing.
7.1.2.3 : MEETINGS
- Project team conduct planning meetings
to develop cost management meeting.
- Attendees : Project manager,
Project sponsor, Selected stake holder,
Selected Project Team members,
Anyone responsibility with Project cost.
7.1.3: PLAN COST MANAGEMENT : OUTPUT
7.1.3.1: COST MANAGEMENT PLAN:
- Describes how Project cost will be Planned,
Structured and controlled.
Cost management plan establish following:
- Unit of measure.
- Level of Precision.
- Level of accuracy
- Organizational procedures link.
* Work breakdown structure (WBS)
* Allows consistency with estimates,
budget and control of cost. - Control Threshold
* Variation cost to be agreed, before
carrying out any action.
* Percentage of deviation from baseline
plan. - Rules of performance measurement
* Earned value management plan - Reporting formats.
* Format and frequency of various cost
reports - Additional details
* Strategic funding choice.
* Procedure to account Fluctuation if
currency exchange rates.
* Procedure for Project cost recording.
7.2.2.2 ANALOGOUS ESTIMATING
Estimate based on attribute & values of previous projects that are similar to current Project.
7.2.2.3 PARAMETRIC ESTIMATING
Estimate based on statistical relation ship between historical data and other variables.
7.2.2.4 BOTTOM UP ESTIMATING
Estimating a components of work.
Cost of individual work package or activities is estimated to greatest level of specified detail.
Detailed summarize or “rolled up” to higher level for subsequent reporting and tracking purpose.
7.2.2.5 ; THREE POINT ESTIMATING
Most likely (cM) :
Based on realistic assessment for the required works and predicted expenses.
Optimistic (cO):
Based on best case scenario for the activity.
Pessimistic (cP):
Based on worst case scenario for the activity.
Triangular distribution : (cO+cM+cP)/3
Beta Distribution : (cO+3cM+cP)/6
EARNED VALUE ANALYSIS
PV (PLANNED VALUE) :
AUTHORISED BUDGET ASSIGNED TO SCHEDULED WORK.
EARNED VALUE:
- SUM OF PLANNED VALUE OF COMPLETD WORK.
MEASURE OF WORK PERFORMED EXPRESSED IN TERMS OF THE BUDGET AUTHORISED FOR THAT WORK.
ACTUAL COST:
REALISED COST INCURRED FOR THE WORK PERFORMED ON AN ACTIVITY DURING A SPECIIFED TIME PERIOD.
BUDGET AT COMPLETION (BAC):
SUM OF ALL BUDGET ESTABLISHED FOR THE WORK TO BE PERFORMED.
COST VARIANCE (CV):
AMOUNT OF BUDGET SURPULUS OR DEFICEIT AT A GIVEN POINT IN TIME.
CV = EV-AC.
+VE = UNDER PLANNED COST
NEUTRAL = ON PLANNED COST.
-VE = OVER PLANNED COST.
SCHEDULE VARIANCE (SV):
AMOINT BY WHICH PROJECT IS AHEAD OR BEHIND THE PANNED DELIVERY DATE AT GIVEN POINT IN TIME.
SV=EV-PV
+VE = AHEAD OF SCHEDULE.
NEUTRAL = ON SCHEDULE
-VE = BEHIND SCHEDULE.
VARIANCE AT COMPLETION (VAC):
PROJECTION OF AMOUNT OF BUDGET DEFICIT OR SURPLUS.
VAC= BAC-EAC.
+VE = UNDER PLANNED COST
NEUTRAL = ON PLANNED COST.
-VE = OVER PLANNED COST.
COST PERFORMANCE INDEX (CPI):
MEASURE OF COST EFFICIENCY OF BUDGET RESOURCES EXPRESSED AS RATIO OF EARNED VALUSE TO ACTUAL COST.
CPI = EV/ AC.
> 1.0 = UNDER PLANNED COST.
EXACTLY 1.0 = ON PLANNED COST.
<1.0 = OVER PLANNED COST.
SCHEDULE PERFORMANCE INDEX (SPI):
MEASURE OF SCHEDULE EFFICIENCY EXPRESSED AS RATIO OF EARNED VALUE TO PANNED VALUE.
SPI = EV/PV
>1.0 -= AHEAD OF SCHEDULE.
EXACTLY 1.0 = ON SCHEDULE.
<1.0 = BEHIND SCCHEDULE.
ESTIMATE AT COMPLETION (EAC) :
EXPECTED TOTAL COST OF COMPLETING ALL WORK EXPRESSED AS THE SUM OF THE ACTUAL COST TO DATE AND THE ESTIMATE TO COMPLETE.
EAC = BAC/CPI
EAC = AC+BAC-EV.
EAC= AC+ BOTTOMUP EST.
EAC= AC+((BAC-EV)/(CPIXSPI))
ESTIMATE AT COMPLETION (ETC):
EXPECTED COST TO FINISH ALL REMAINING PROJECT WORK.
ETC = EAC-AC.
ETC= REESTIMATE.
TO COMPLETE PERFORMANEC INDEX (TCPI):
MEASURE TO FINISH COST PERFORMANCE TO BE ACHEIVED WITH REMAINING RESOURCES IN ORDER TO MEET SPECIFIED MANAGEMENT GOAL.
EXPRESSED AS RATIO OF COST TO FIINISH THE OUTSTANDING WORK TO BUDGET AVAILABLE.
TCPI = (BAC-EV) / (BAC-AC)
TCPI = (BAC-EV) / (EAC-AC)
> 1.0 = HARDER TO COMPLETE.
EXACTLY 0 = SAME TO COMPLETE.
<1.0 = EASIER TO COMPLETE.
