group 2 – cost management

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Elmar Meyer Pierre Janse van Vuuren Nathi Ndlovu Ferdinand Chauke Moses Fakude 9/15/2010 1 PMP Exam Prep.

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Group 2 – Cost Management. Elmar Meyer Pierre Janse van Vuuren Nathi Ndlovu Ferdinand Chauke Moses Fakude. Process Chart – Cost Management. INITIATION. PLANNING. EXCECUTING. MONITORING & CONTROLLING. CLOSING. Estimate Cost Determine Budget. Control Costs. INITIATION. PLANNING. - PowerPoint PPT Presentation


Page 1: Group 2 – Cost Management

Elmar MeyerPierre Janse van Vuuren

Nathi NdlovuFerdinand Chauke

Moses Fakude

9/15/2010 1PMP Exam Prep.

Page 2: Group 2 – Cost Management

Process Chart – Cost ManagementINITIATION PLANNING





• Estimate Cost• Determine Budget

• Control Costs

9/15/2010 2PMP Exam Prep.

Page 3: Group 2 – Cost Management

9/15/2010 PMP Exam Prep. 3






Determine how you will do planning – part of all management plans

Estimate time and cost

Develop Budget

Determine all rolls and responsibilities

Go back to - iterations

Finalize the “how to execute and control” parts of all management plans

Develop final PM plan and performance measurement baseline that are realistic

Take action to control the project

Measure performance against the performance measurement baseline

Measure performance against other metrics

determined by the Project Manager

Determine the variances and if they warrant a

change request

Influence the factors that cause changes

Request Changes

Create forecast

Page 4: Group 2 – Cost Management

Cost Management PlanIncludes:

Specifications of EstimatesLevel of AccuracyReporting FormatsRules for measuring Cost PerformanceWhether cost include both direct & indirect

costsControl Thresholds

9/15/2010 4PMP Exam Prep.

Page 5: Group 2 – Cost Management

Cost Management Concepts 1 of 3Life Cycle Costing

Looking at the cost of the whole life of the project, not just the cost of the project.

Explain: If you reduce the quality of a project in order to

save project costs, but due to the reduction in quality, the maintenance of the project increases more than the saving …. This is not good planning.

9/15/2010 PMP Exam Prep. 5

Page 6: Group 2 – Cost Management

Cost Management Concepts 2 of 3Value Analysis

Also referred to as Value EngineeringIt involves finding a more cost effective way of

producing the same product, without compromising the scope or quality.

9/15/2010 PMP Exam Prep. 6

Page 7: Group 2 – Cost Management

Cost Management Concepts 3 of 3Cost Risk

Based on the risk of procurement contracts.

Example: Q: Who has the cost risk in a fixed price contract? A: The seller.

Definition: Seller = Contractor, and or, sub-contractor to the

project Buyer = Employer9/15/2010 PMP Exam Prep. 7

Page 8: Group 2 – Cost Management

Estimate CostsThe process where the estimates for each

activity are made in order to determine the budget.

Cost of quality efforts Cost of risk efforts Cost of the PM’s time Cost of Project Management activities Direct costs Indirect costs Profit Overhead costs (P&G’s)

9/15/2010 PMP Exam Prep. 8

Page 9: Group 2 – Cost Management

Types of CostsVariable Costs

This cost change with the a change in the amount of work

Fixed Costs This cost will not change, eg. Setup and rental cost

Direct Costs Directly related to the work on the project, ie.

Travel, team wages, materials

Indirect Costs These are overhead items, ie taxes and benifits

9/15/2010 PMP Exam Prep. 9

Page 10: Group 2 – Cost Management

Inputs to Estimating CostsScope BaselineProject ScheduleHR PlanRisk RegisterOrganizational Process Assets (Lessons

learned, Hist.)Company CultureProject Management Costs

9/15/2010 PMP Exam Prep. 10

Page 11: Group 2 – Cost Management

How is Estimating Done? 1 of 2It’s a “Bottom up” process

Start with each work package, and combine, until total figure. This process requires an accurate WBS, and schedule. Advantages.

More accurate Gains buy-in from the team Based on a detailed analysis Provides a basis for monitoring and controlling

Disadvantage Takes time Tendency for the team to pad estimates unless taught about reserves Requires that the project be defined and well understood before work starts.

9/15/2010 PMP Exam Prep. 11

Page 12: Group 2 – Cost Management

How is Estimating Done? 2 of 2Analogous EstimateAdvantages

Less costly to create Give the PM an idea of the level of Management’s expatiation Overall project costs will be capped

Disadvantages Requires considerable experience to do it well Infighting to gain the biggest piece of the budget without being able to

justify the need Extremely difficult for projects with uncertainties Does not take into account the differences between projects

9/15/2010 PMP Exam Prep. 12

Page 13: Group 2 – Cost Management

Contributions to Creation of EstimatesProject Management Software

Combination of various software packages

Determining Resource Cost Rates Gathering of all recourse costs for specific project

Reserve Analysis Allowing contingencies and Risk allowances

Cost of Quality Cost of work for quality planning

9/15/2010 PMP Exam Prep. 13

Page 14: Group 2 – Cost Management

Accuracy of EstimatesROM

Rough order of magnitude estimate +/- 50% (Initiation Phase)

Budget Range of -10% to 25% accuracy (Planning phase)

Definitive Estimate More accurate ( Monitoring Phase)

9/15/2010 PMP Exam Prep. 14

Page 15: Group 2 – Cost Management

Thank You

9/15/2010 PMP Exam Prep. 15