Project Co$t Management

Project Co$t Management

Knowledge Area

Process

Initiating Planning Executing Monitoring & Control Closing

Cost   Cost EstimatingCost Budgeting   Cost Control  

Enter phase/Start project

Exit phase/End project

InitiatingProcesses

ClosingProcesses

PlanningProcesses

ExecutingProcesses

Monitoring &Controlling Processes

• The process involved in estimating, budgeting, and controlling cost so that the project can be completed within approved budget

• Value analysis (value engineering)– Looking at less costly way to do the same work within the same scope

Project Cost Management

Life cycle costingLooking at the cost of whole life of the product (include maintenance)

cost management plan- Level of accuracy (e.g., $100, $1,000),based on the scope of the activities and magnitude of the project, and may include an amount for contingencies.-Units of measure (e.g. staff hours, staff days, weeks)

-Reporting Format

-Rules of performance measurement.

(Earned Value Management rule)

• Types of Cost• Variable Costs

– Change with the amount of production/work 

– e.g. material, supplies, wages

• Fixed Costs– Do not change as production change

– e.g. set-up, rental

• Direct Costs – Directly attributable to the work of project

– e.g. team travel, recognition, team wages

• Indirect Costs– overhead or cost incurred for benefit of more than one project

– e.g. taxes, fringe benefit, janitorial services

• Quality/Accuracy of Cost Estimation

• Most difficult to estimate as very little project info is available, made during initiating process

Estimate Accuracy

Rough Order of Magnitude(ROM)

+/- 50%

Budget Estimate

-10%+25%

Definitive Estimate

-5%10%

• Used to finalize the Request for Authorization (RFA), and establish commitment, made during planning phase

• During the project and refined

Scope baseline- Scope statement.

-information can be used in estimating cost.

-are assumptions include indirect cost or not?

- Work breakdown structure

- Relationships between all component and deliverables

- WBS dictionary.

- a description of the work in each WBS component required to

produce each deliverable

Project Schedule- the type and quantity of

resources.- Schedule activity

resources and their respective durations

- availability and quantities required of staff and material needed to perform schedule activities.

Human Resource Plan

-Project staffing attributes,

personnel rates, and related

rewards /recognition

• Risk Register- consider risk

mitigation costs.• Risks which can be

either threats or opportunities, typically have an impact on both activity and overall project costs.

TOOLS & TECHNIQUES• Cost of Quality (COQ)• Assumptions about costs of quality to prepare

the activity cost estimate.• Vendor Bid Analysis- analysis of what the project should cost, based

on the responsive bids from qualified vendors. - Where projects are awarded to a vendor under

competitive processes, additional cost estimating work can be required of the project team to examine the price of individual deliverables

Estimate Cost• The process of developing approximation of the monetary resources needed to complete project activities

Inputs

1. Scope baseline2. Project schedule3. Human resource plan4. Risk register5. Enterprise environmental factors

6. Organizational process assets

Tools & Techniques

1. Expert judgment2. Analogous estimating3. Parametric estimating4. Bottom-up estimating5. Three-point estimates6. Reserve analysis7. Cost of quality8. Project management estimating software

9. Vendor bid analysis

Outputs

1. Activity cost estimates2. Basis of estimates3. Project document updates

Activity Cost Estimates

• Activity cost estimates are quantitative assessments of the probable costs required to complete project work.

• Cost estimates can be presented in summary form or in detail.

• Costs are estimated for all resources that are applied to the activity cost estimate.

ACTIVITY COST ESTIMATES

Project Title:

Date Prepared:

WBS IDResourc

eDirect Costs

Indirect Costs Reserve Estimate Method

Assumptions/

ConstraintsAdditional

Information RangeConfidence

LevelFrom WBS

Type of resource, labor, material, etc.

Costs related to the project

Indirect costs.

Contingency reserve amounts.

Approximate cost

Method used, such as parametric, analgous, etc

Any assumptions used in developing the estimate, such as labor cost per hour.

Information on cost of quality, interest rate, or other

Range of estimate if applicable.

Degree of confidence in the estimate.

                     

                     

ACTIVITY COST ESTIMATES

Project Title:

Date Prepared:

WBS IDResourc

eDirect Costs

Indirect Costs Reserve Estimate Method

Assumptions/

ConstraintsAdditional

Information RangeConfidence

LevelFrom WBS

Type of resource, labor, material, etc.

Costs related to the project

Indirect costs.

Contingency reserve amounts.

Approximate cost

Method used, such as parametric, analgous, etc

Any assumptions used in developing the estimate, such as labor cost per hour.

Information on cost of quality, interest rate, or other

Range of estimate if applicable.

Degree of confidence in the estimate.

                 

Constructing private hospital5/11/2012

500 7525 analogousPrices not exceed

From 7000-7525

90%High quality cost 1000

257000machine1.1.1.3

Basis of Estimates- Documentation of the basis of the estimate

- Documentation of all assumptions made,

- Documentation of any known constraints,

- Indication of the range of possible estimates

(e.g., $10,000 (±10%) to indicate that the item is

expected to cost between a range of values)

- Indication of the confidence level of the final estimate.

COST ESTIMATING WORKSHEET

Project Title: Date Prepared:

Parametric EstimatesWBS ID Cost Variable Cost per Unit Number of Units Cost Estimate

1.1 Square feet $9.50 36 $342          

Analogous EstimatesWBS ID Previous Activity Previous Cost Current Activity Multiplier Cost Estimate

1.1Build 160 sq ft.

deck $5,000 Build 200 sq. ft.

deck 1.25 $6,250            

           Three Point Estimates

WBS ID Optimistic Cost Most Likely Cost Pessimistic CostWeighting Equation

Expected Cost Estimate

1 $4,000 $5,000 $7,500 (o+4m+p)/6 $5,250            

Constructing private hospital

BOTTOM-UP COST ESTIMATING WORKSHEET

Project Title:

Date Prepared:

WBS IDLabor Hours

Labor Rates Total Labor Material Supplies Equipment Travel

Other Direct Costs

Indirect Costs Reserve Estimate

From WBS.

From duration estimates.

By hour, day or fixed rate.

Hours x rates.

From quotes.

From quotes.

From quotes.

From quotes.

As appropriate.

Per company policy.

As appropriate.

Sum of all costs.

 1.1.1.3 800  0.05 4  20   7000  25  20  25  250  500  7840

Constructing private hospital 5/11/2012

Cost AggregationCost estimates are aggregated by work packages in accordance with the WBS. The work package costestimates are then aggregated for the higher component levels of the WBS

Reserve Analysis• Reserves & risk management are important  while estimating!– Contingency reserves:  Cost Baseline the cost impacts of the remaining risk

– Management reserves:  Cost Budgetextra fund to cover unforeseen risk or changes to the project

Activity estimates

Work package estimates

Control account estimates

Project estimates

Contingency reserves

Management reserves

Cost baseline

 

Cost budget

Historical Relationships

-use of project characteristics

(parameters) to develop

mathematical models to

predict total project costs.

(e.g., residential home

construction is based on a

certain cost per square foot of

space)

Funding Limit Reconciliation

-The expenditure of funds

should be reconciled with

any funding limits on the

commitment of funds

Determine BudgetProcess of aggregating the estimated cost of individual activities or work packages to establish an authorized cost baseline.

Inputs

1. Activity cost estimates2. Basis of estimates3. Scope baselines4. Project schedule5. Resource calendars6. Contracts7. Organizational process assets

Tools & Techniques

1. Cost aggregation2. Reserve analysis3. Expert judgment4. Historical relationship5. Funding limit reconciliation

Outputs

1. Cost performance baseline

2. Project funding requirements

3. Project document updates

- authorized time-phased budget at completion

- It is developed as a summation of the approved budgets by

time period and is typically displayed in the form of an S-curve,

Cost Performance Baseline

Project Funding Requirements.

The total funds required are

those included in the cost

baseline, plus

management reserves

QUESTIONS?

1- a cost management plan contains a description of:

A-the project costs

B- how resources are allocated

C- the budgets and how they were calculated

D- the WBS level at which earned value will be

calculated

2- a definitive estimate is

A- a level of estimating that can be achieved without the

team help

B-created during the initiating process group

C- the most expensive to create

D- within a range of -10 percent to +25 percent of actual

3- a project manager wants to decrease costs on a

project that a consultants is completing for her

company what costs should the project manager

consider to accomplish this?

A- variable and fixed

B- variable and direct

C-fixed and indirect

D- direct and indirect

4- Which type of costs is team training?

A ) Direct

B ) E V

C ) Indirect

D ) fixed

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5- A project manager has completed a detailed WBS and cost estimates for each work package. To create a cost baseline from this data, the project manager would :

A ) Use the highest level of the WBS to estimate analogously

B ) Sum up the work package and risk contingency reserve estimates.

C ) Roll up work package estimates into a project total and add managements reserves.

D ) Gain expert opinions of the project costs.

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6- You are having difficulty estimating the cost of your project. Which of the following BEST describes the most probable cause of your difficulty?

A ) Inadequate scope definition

B ) Unavailability of desired resources

C ) Lack of historical records from previous projects

D ) Lack of company processes

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7-If you use the Funding Limit Reconciliation technique

while performing the Determine Budget process, which

of the following will NOT change?

A) Activity Cost Estimates

B) Schedule

C) Resources required during an Iteration

D) Planned scope to be delivered in a Sprint

8 -Which is NOT true about Analogous Cost Estimating

A-Uses Expert Judgment

B-Used when reference projects are similar

C-Does not require high expertise on part of estimators

as estimates are based on previous projects

D-Useful in early phases of the project

Thank you