1. 1/8/2011
Project Management
Knowledge Areas
Section – 3
Chapter – 7
p
Project Cost Management
Session Objectives…
1. To identify Project Cost Management
y
j
g
Knowledge Area Processes
2. How to estimate approximate costs of
the resources needed
3. How to aggregate and determine
budgeted costs of project and to develop
the Cost Baseline
4. How to Control the influencing factors
that create variances to the project
budget
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2. 1/8/2011
Project Cost Management
Exam Objectives…
1.
1 Estimating Costs of schedule
activities
2. Developing Cost baseline
3. Implementing Cost Control
4.
4 Measuring Project Performance
Project Cost Management
Is primarily concerned with the cost of
p
the resources needed to complete
schedule activities.
Also considers
Cost of using,
Cost of maintaining
Cost f
C t of supporting th product,
ti the
d t
service or result
Is also called as Life-Cycle Costing
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3. 1/8/2011
Project Cost Management
The Processes in Project Cost Management are:
1. Estimate Costs
2. Determine Budget
3. Control Cost
These processes interact with each other and
with processes in the other knowledge areas
Each process occurs once in every project
Smaller projects scope, estimating costs and
determining budget are viewed as a single process
Project Cost Management
Establishes…
o Level of accuracy
y
Rounding of data to a prescribed precision
o Units of measure
Each unit used in measurement, such as staff
hours/staff days is defined
o Organizational procedures
The WBS component used for the project
cost accounting is called a control account.
This account is assigned a code that is linked
to organization’s accounting system
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4. 1/8/2011
Project Cost Management
Establishes…
o Control thresholds
Variance thresholds for costs or other
indicators such as person-days, can be
defined to indicate the agreed amount of
variation allowed
o Performance Measurements rules
EVM calculating formulas are defined
o Reporting formats
o Process description
Estimate Costs
Estimate Costs is the process of
g
calculating the costs of the identified
resources needed to complete the
project work.
Estimate Costs is the cost of the
resources required to complete the
p j
project work & Pricing includes a profit
g
p
margin
Estimates are generally expressed in units
of currency
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5. 1/8/2011
Estimate Costs
•
•
•
•
•
1. Scope Baseline
2. Project Schedule
3. Human Resource Plan
4. Risk Register
5. Enterprise Environmental
Factors
• 6. Organizational Process
Assets
Input
Tools &
Techniques
•
•
•
•
•
•
•
•
1. Expert Judgment
2. Analogous Estimating
3. Parametric Estimating
4. Bottom-Up Estimating
5. Three-Point Estimates
6. Reserve Analysis
7. Cost of Quality
8. Project Management
Estimating Software
• 9.Vender Bid Analysis
• 1. Activity Cost estimates
• 2. Basis of Estimates
• 3. Project Document Updates
Output
Estimate Costs
Inputs
1. Scope Baseline
p
2. Project Schedule
3. Human Resource Plan
4. Risk Register
5. Enterprise Environmental Factors
6. Organizational Process Assets
Cost estimating policies & templates
Historical information
Lessons learned
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6. 1/8/2011
Estimate Costs
Tools and Techniques
1. Expert J g
p
Judgment
2. Analogous Estimating
3. Parametric Estimating
4. Bottom-up Estimating
5. Three-Point Estimates
6. Reserve Analysis
7. Cost of Quality
8. Project Management Estimating Software
9. Vender Bid Analysis
Estimate Costs
Outputs
1.
1 Activity Cost Estimates
2. Basis of Estimates
3. Project document Updates
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7. 1/8/2011
Cost Estimating Techniques
Three Point Estimates is to improve
accuracy and reduce risk factors, Program
Evaluation and Review Technique (PERT) is
used
Most likely (Cm)
Optimistic (Co)
Pessimistic (C )
P i i i (Cp)
Weighted average of the activity cost is
(Co + 4 X Cm + Cp) / 6 stages of planning
Cost Estimating Techniques
Analogous Estimating
Relies on historical information to predict
p
the cost of the current project
Also knows as top-down estimating
It’s a form of expert judgment
Bottom-up Estimating
Calculates cost of each component of the
WBS, d i
WBS and arrives at a sum f the project
t
for th
j t
Most time consuming and expensive method
Most accurate method
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8. 1/8/2011
Cost Estimating Techniques
Parametric Estimating
Uses mathematical model based on known
parameters to predict the cost of a project
Usually calculated cost per unit
Types of parametric estimating
Regression analysis:- a statistical approach
to predict future values, based on historical
values
Learning curve:- Cost per unit
decreases the more units workers
complete
Cost Estimating Techniques
Reserve analysis
Is also called as contingency reserve
Used to meet cost overruns due to
risks that have impacted the projects’
cost baseline
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9. 1/8/2011
Determine Budget
Determine budget is aggregating the
estimated costs of individual schedule
activities to determine total cost of
the project
The cost baseline is used for
measuring project performance
Determine Budget
• 1. Activity Cost Estimates
• 2. Basis of Estimates
• 3. Scope Baseline
• 4. Project Schedule
• 5. Resource Calendars
• 6. Contracts
• 7. Organizational Process
Assets
Input
Tools &
Techniques
• 1. Cost Aggregation
• 2. Reserve Analysis
• 3. Expert Judgment
• 4. Historical Relationships
• 5. Funding Limit
Reconciliation
• 1. Cost Performance
Baseline
• 2. Project Funding
Requirements
• 3. Project Document
Updates
Output
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10. 1/8/2011
Determine Budget
Inputs
1.
1 Activity Cost Estimates
2. Basis of Estimates
3. Scope Baseline
4. Project Schedule
5.
5 Resource Calendars
6. Contracts
7. Organizational Process Assets
Determine Budget
Tools and Techniques
1.
1 Cost Aggregation
2. Reserve Analysis
3. Expert Judgment
4. Historical Relationships
5.
5 Funding Limit Reconciliation
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11. 1/8/2011
Determine Budget
Outputs
1.
1 Cost Performance Baseline
2. Project Funding Requirements
3. Project Document Updates
Tools & Techniques
Historical Relationships
o Result in parametric or analogous
estimates
involved
to
develop
mathematical models to predict total costs
o Models reliability can be improved by
Accurate historical information
Quantifiable parameters
Scalable models
o Ex. Cost per sqr.ft.
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12. 1/8/2011
Control Cost
Cost control focuses on the ability of
costs to change and on the ways of
allowing or preventing cost changes from
happening
Is concerned with understanding the cost
variances.
As cost variances happen, they must be
examined, recorded, and investigated.
Control Cost
Cost control focuses on…
Controlling causes of change to ensure
the changes are actually needed
Controlling and documenting changes to
the cost baseline as they happen
Controlling changes in the project and
their influence on cost
h
fl
Performing cost monitoring to recognize
and understand cost variance
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13. 1/8/2011
Control Cost
Cost control focuses on…
Recording appropriate cost changes in
the cost baseline
Preventing unauthorized changes to the
cost baseline
Communicating the cost changes to the
p p
proper stakeholders
Working to bring and maintain costs
within acceptable range
Control Cost
• 1. Project Management
Plan
• 2. Project Funding
Requirements
• 3. Work Performance
Information
• 4. Organizational Process
Assets
Input
Tools &
Techniques
• 1. Earned Value
Management
• 2. Forecasting
• 3. To-Complete
• Performance Index
•4 P f
4. Performance Reviews
R i
• 5.Variance Analysis
• 6. Project Management
Software
• 1. Work Performance
Measurements
• 2. Budget Forecasts
• 3. Organizational Process
Assets Updates
• 4. Change Requests
• 5. Project
• Management Plan Updates
• 6. Project Document Updates
Output
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14. 1/8/2011
Control Cost
Inputs
1.
1 Project management plan
2. Project funding requirements
3. Work performance information
4. Organizational Process Assets
Control Cost
Tools and Techniques
1.
1 Earned Value Management
2. Forecasting
3. To-Complete Performance Index
4. Performance reviews
5.
5 Project management software
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15. 1/8/2011
Control Cost
Outputs
1.
1 Work Performance Measurements
2. Budgeted Forecasts
3. Organizational Process Assets Updates
4. Change Requests
5.
5 Project Management Plan Updates
6. Project Document Updates
Project Cost Management
To Sum up…
1. We know Project Cost Management
j
g
Knowledge Area Processes
2. We
know how to estimate an
approximate costs of the resources
needed
3. We know how to aggregate the
estimated costs of individual activities to
establish a Cost Baseline
4. We know how to Control the influencing
factors that create variances to the
project budget
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16. 1/8/2011
Questions ?
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