Chapter7 ProjectCostManagement Project Cost Management (PMBOKGuide)

MohammadA.Rajabi Dept.ofGeomatics E D t fG ti Eng.,UniversityofTehran U i it f T h Tel:+982188334341,Cell:+989121325823 Email:marajabi@ut.ac.ir Email: marajabi@ut ac ir Homepage:http://www.marajabi.com

TableofContent Table of Content

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Introduction
Process involved in estimating budgeting and Processinvolvedinestimating,budgetingand controllingcoststocompletetheprojectwith theapprovedbudget the approved budget Estimatecosts D Determinebudget i b d Controlcosts

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CostManagementPlan(1/2)
Eitherformalorinformal,highlydetailedorbroadly framedcanestablish:
Levelofaccuracy(roundingofdata,$100,$1000)basedon thescopeandmayincludeanamountforcontingencies Units of measure (staff hours staff days weeks or lump Unitsofmeasure(staffhours,staffdays,weeksorlump sum)foreachrecourses Organizationalprocedureslinks(theWBScomponentused fortheprojectcostaccountingiscalledtheControl f h j i i ll d h C l Account(CA),hasauniquecodeoraccountnumbers linkeddirectlytoorganizationsaccountingsystem Controlthresholds(variancethresholdsformonitoringcost performance,agreeduponbeforeanyactionistaken, expressedaspercentage)
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CostManagementPlan(2/2) Cost Management Plan (2/2)

Rulesofperformancemeasurement
DefineWBSpointswherecontrolaccountswillbeperformed Establishtheearnedvaluemeasurementtechniques(weighted milestone,fixedformula,percentcomplete,...) Specifytheearnedvaluemanagementcomputationequationsfor determiningtheprojectedEstimateatCompletion(EAC)forecasts determining the projected Estimate at Completion (EAC) forecasts andothertrackingmethodologies

Reportingformat(formatandfrequencyofcostreports) Processdescription p

Shouldconsider:
stakeholderrequirements(costofanitemwhendecisionis made,orderisplaced,itemisdelivered,actualcostis made order is placed item is delivered actual cost is incurredorrecordedforprojectaccounting) Effectofprojectdecisionsonthesubsequentrecurring costofusing,maintaining,andsupportingtheproduct, cost of using maintaining and supporting the product service
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7.1EstimateCosts 7.1 Estimate Costs

Theprocessofdevelopinganapproximationofthe monetaryresourcesneededtocompleteproject monetary resources needed to complete project activities Identificationandconsiderationofcostingalternatives C t t d ff Costtradeoffsandrisks,makeversusbuy,lease, d ik k b l sharingtheresources Expressedinunitsofsomecurrency,staffhours,staff days Iterativeprocess,accuracyincreasesastimegoesby, RoughOrderofMagnitude(ROM)[50%]atthe Rough Order of Magnitude (ROM) [50%] at the beginning,narrowdownto10% Includelabour,materials,equipment,services, facilities,inflation,contingencycosts facilities inflation contingency costs
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Inputs,Tools&Techniques, Outputs

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DataFlowDiagram Data Flow Diagram

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Inputs
Scope baseline Scopebaseline
Scopestatement(onlydirectorindirectcostsas well?,contractualorlegalimplications:HSE, well? contractual or legal implications: HSE security,performance,insurance,copyright, licences,permits) Workbreakdownstructure WBSdictionary(identificationofthedeliverables y( andtheirdescriptions)

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Inputs
Projectschedule(typeandquantityofresources,amount oftheirtime>scheduleactivity) H Humanresourceplan(projectstaffingplan,personalrates, l ( j ffi l l rewards,recognitions) Riskregister(riskmitigationcosts>delays,andnearterm costs!) !) Enterpriseenvironmentalfactors
Marketcondition Publishedcommercialinformation

Organizationalprocessassets
Costestimatingpolicies Cost estimating policies Templates Historicalinformation Lessonlearned Lesson learned
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ToolsandTechniques
Expertjudgment
Labourrates,materialcosts,inflation,riskfactors,...,historical information)

Analogousestimating
Scope,costbudget,duration,size,scale,weight,complexity Goodwhenlimitedinfoisavailable,earlyphaseofproject , yp p j Lesscostly,lesstimeconsuming,lessaccurate

Parametricestimating Bottomupestimating Bottom up estimating Threepointestimates(mostlikely,optimistic,pessimistic) Reserveanalysis(contingencyallowancesforuncertainty) CostofQuality(COQ) PMestimatingsoftware Vendorbidanalysis Vendor bid analysis
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Outputs Outputs
Activitycostestimates
Summaryordetail Labour,materials,equipment,services,facilities, IT,inflation,contingencyreserve IT inflation contingency reserve

Basisofestimates
Documentation of the basis of the estimate Documentationofthebasisoftheestimate Documentationofassumptionmade Documentation of known constraints Documentationofknownconstraints Indicationofuncertainty(percentage) Indication of confidence level of final estimate Indicationofconfidenceleveloffinalestimate
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7.2DetermineBudget 7.2 Determine Budget

The process of aggregating the estimated Theprocessofaggregatingtheestimated costsofindividualactivitiesorworkpackages toestablishanauthorizedcostbaseline to establish an authorized cost baseline Projectbudgetconstitutethefunds authorizedtoexecutetheproject authorized to execute the project Projectcostperformanceismeasuredagainst theauthorizedbudget h h i db d

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Inputs,Tools&Techniques, Outputs

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DataFlow Data Flow

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Inputs
Activitycostestimates Basis of estimates Basisofestimates Scopebaseline
Scopeestimate Work breakdown structure Workbreakdownstructure WBSdictionary

Projectschedule Resourcecalendars Contracts Organizationalprocessassets Organizational process assets

Formal/informalcostbudgetingrelatedpolicies,procedures, guidelines Costbudgetingtools g g Reportingmethods

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ToolsandTechniques Tools and Techniques

Costaggregation Reser e anal sis Reserveanalysis Expertjudgment
Otherunitswithinorganization Other units within organization Consultants Stakeholders,customers Professionalandtechnicalassociation Industrygroups

Historical relationships (analogous estimate reliability: Historicalrelationships(analogousestimate,reliability: similarityofprojects,parameters,scalabilityofmodel) Fundinglimitreconciliation g

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Outputs
Cost performance baseline Costperformancebaseline
AuthorizedtimephasedBudgetatCompletion (BAC)usedtomeasure,monitorandcontrol (BAC) used to measure monitor and control overallcostperformance(Sshapecurve)

Project funding requirements Projectfundingrequirements Projectdocumentupdates

Ri k Riskregister it Costestimates Projectschedule h d l
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CostBaseline,Expenditures,and FundingRequirements

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7.3ControlCosts 7.3 Control Costs

The process of monitoring the status of the Theprocessofmonitoringthestatusofthe projecttoupdatetheprojectbudgetand managingchangestothecostbaselines managing changes to the cost baselines Involvesrecordingactualcostspent A Approvaltoincreasethebudgetthrough l i h b d h h IntegratedChangeControlProcess

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7.3ControlCosts 7.3 Control Costs

Includes
Influencing the factors that create changes to authorized Influencingthefactorsthatcreatechangestoauthorized costbaselines Ensuringchangerequestsareactedinatimelymanner M Managingtheactualchanges i th t l h Ensuringthecostexpendituresdonotexceedthe authorizedfunding Monitoringcosttofindoutthevariances Monitoringworkperformanceversusfundsexpended Preventingunapprovedchangesincostorresources g pp g Informingappropriatestakeholdersofapprovedchanges andtheircosts Bringing expected cost overruns within accepted limits Bringingexpectedcostoverrunswithinacceptedlimits
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Inputs,Tools&Techniques, Outputs

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DataFlow Data Flow

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Inputs
Projectmanagementplan
Costperformancebalance
Tocheckwiththeactualresultstoseeifchange(corrective, preventiveactions)isnecessary

Costmanagementplan
How the project should be managed and controlled Howtheprojectshouldbemanagedandcontrolled

Projectfundingrequirements Workperformanceinformation
Whichdeliverableshavestarted,finished,howmuchprogress Costshavebeenauthorized,incurred,andestimateforfuture

Organizationalprocessassets
Formal/informalcostcontrolrelatedpolicies,procedures,and guidelines Costcontroltools Monitoringandreportingmethods
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ToolsandTechniques
EarnedValueManagement(EVM)
Usesprojectscope,costandschedulemeasurestoassessand measureprojectperformanceandprogress p j p p g Developandmonitorsthreekeydimensionsforeachwork packageandcontrolaccount
Plannedvalue(PV)
AuthorizedbudgetassignedforcompletionofanactivityorWBScomponent Detailedauthorizedwork+thecorrespondingbudget TotalPViscalledPerformanceMeasurementBaseline(PMB) TotalPVfortheprojectiscalledBudgetatCompletion(BAC)

Earnedvalue(EV)
Thevalueofworkperformedexpressedintermsofapprovedbudget Authorizedworkthathasbeencompleted+thecorrespondingauthorized budget IsrelatedtoPVbaseline(PMB) EVcannotbegreaterthanauthorizedPV

Actualcost(AC)
Totalcostactuallyincurredforaccomplishingworkperformed Samedefinition(directhoursonly,directcostsonly,allcostsincludingindirect costs)asPVandEV Hasnoupperlimit MohammadA.Rajabi 26

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ToolsandTechniques Tools and Techniques

Variances from approved baseline is monitored Variancesfromapprovedbaselineismonitored
Schedulevariance(SV)
Measureofscheduleperformance SV=EV PV SVattheendofprojectiszero

Cost variance (CV) Costvariance(CV)

Measureofcostperformance CV=EVAC CVattheendofprojectisthedifferencebetweenBACand theactualamountspent AnynegativeCVisoftennonrecoverable

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ToolsandTechniques Tools and Techniques

Scheduleperformanceindex(SPI) p ( )
Ameasureofprogressachievedversusprogressplanned SPI=EV/PV Sometimesusedwithcostperformanceindex(CPI) Sometimes used with cost performance index (CPI) SPI<1>lessworkcompletedthanplanned SPI>1>moreworkcompletedthanplanned Ameasureofvalueofworkcompletedversustheactualcost CPI=EV/AC CPI<1>costoverrunforworkcompleted CPI>1>costunderrunforworkcompleted

Costperformanceindex(CPI)

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EV,PV,andActualCosts EV, PV, and Actual Costs

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ToolsandTechniques Tools and Techniques

Forecasting
BudgetatCompletion(BAC) Estimate at Completion (EAC) EstimateatCompletion(EAC)
Generated,updated,reissuedbasedonwork p performance Basedonactualcostsincurred+anestimateto complete(ETC)theremainingwork MostcommonEACforecastingismanualbottomup summation Burden:doingEACtakesenergy.EAC=AC+(bottom up Burden: doing EAC takes energy EAC=AC+ (bottomup ETC)
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ToolsandTechniques Tools and Techniques

StatisticalEACbasedonEVMmethod
EACforecastforETCworkperformedatthebudgetedrate. EAC=AC+BACEV EACforecastedforETCworkperformedatthepresentCPI. EAC=BAC/(cumulativeCPI) EACforecastforETworkconsideringbothSPIandCPIfactors. VariationofthismethodweightheCPIandSPIdifferently(80/20, 50/50,...). 50/50 ) EAC=AC+[(BAC EAC= AC +[(BAC EV)/(cumulativeCPIxcumulativeSPI)]

ToCompletePerformanceIndex(TCPI),thecalculated projectionofcostperformancethatmustbeachieved j ti f t f th t tb hi d ontheremainingworktomeetaspecificgoalsuchas BACorEAC.TCPIbasedonBAC=(BACEV)/(BACAC) ( )( )

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TCPI

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ToolsandTechniques Tools and Techniques

If cumulative CPI falls below the baseline plan, all IfcumulativeCPIfallsbelowthebaselineplan,all futureworkoftheprojectwillneedto immediatelybeperformedintherangeofthe TCPI(BAC)tostaywithintheauthorizedBAC. Reachingthegoaldependsonrisks,schedule, technicalperformance,... Ifnot,EACiscomputedandonceapproved,itis thenewgoal h l TCPIbasedonEAC=(BACEV)/(EACAC)
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 Performancereviews

ToolsandTechniques Tools and Techniques

Comparecostperformanceovertime,schedule activitiesorworkpackagesoverrunningandunder runningthebudget,andtheestimatedfundsneeded tocompleteworkinprogress p p g InEVM:

Varianceanalysis:comparesactualproject(costorschedule) performancetoplannedorexpectedperformance performance to planned or e pected performance Trendanalysis:examinesprojectperformanceovertimeto determineifperformanceisimprovingordeteriorating. GraphicalcomparisonofBACversusEACandcompletion Graphical comparison of BAC versus EAC and completion dates Earnedvalueperformance:comparesthebaselineplanto actualscheduleandcostperformance actual schedule and cost performance
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ToolsandTechniques Tools and Techniques

Varianceanalysis y
Costperformancemeasurements(CV,CPI)areusedto assessthemagnitudeofvariationtotheoriginalcost baseline CauseanddegreeofvarianceWRTthecost performancebaseline?>corrective/preventive action? Highacceptablevariancerangeatstart,lowerasthe projectgetsclosertocomplete

ProjectManagementsoftware f
MonitoringPV,EV,andAC

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Outputs
Workperformancemeasurements
CalculatedCV,SV,CPI,andSPIvaluesforWBScomponents,workpackages andcontrolaccountsaredocumentedandcommunicatedtostakeholders and control accounts are documented and communicated to stakeholders

Budgetforecasts
CalculatedEACvalueorbottomupEACvalueisdocumentedand communicatedtostakeholders

OrganizationalProcessAssetsupdates O i i lP A d
Causeofvariance Correctiveactionschosenandthereasons Other types of lessons learned from project cost control Othertypesoflessonslearnedfromprojectcostcontrol

Changerequests(throughthePerformIntegratedChangeControlProcess) Projectmanagementplanupdates
Costperformancebaseline(scope,activityresources,costestimates. Sometimesnewcostbaselineshouldbepreparedascostvarianceissevere) S ti t b li h ld b d t i i ) Costmanagementplan

Projectdocumentplan
Cost estimates Costestimates Basisofestimates

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