smsvn pmp training_slides_chapter_7

SMSVN – PMP Training Course 2013 – Chapter 7 Prepared by Nam Trung - 26/07/2013

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PROJECT COST MANAGEMENT Make sure the project can be completed within the

approved budget. There are 4 processes

Plan Cost Management Estimate Cost Determine Budget Control Cost

Notes: Different stakeholders -> different ways to manage cost primarily concerned with the cost of the resources

needed to complete project activities


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7.1 PLAN COST MANAGEMENTis the process that establishes the policies, procedures,

and documentation for planning, managing, expending, and controlling project costs.

Inputs Tool&Techniques Outputs

.Project management plan

.Project charter

.EEF

.OPA

.Expert Judment

.Analytical techniques

.Meetings

.Cost management plan


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7.2 ESTIMATE COSTIs the process of developing approximation of the

monetary resources needed to complete project activities

Inputs Tool&Techniques Outputs


.Human resource management plan.Scope baseline.Project schedule.Risk register.Enterprise environmental factors.Organizational process assets

.Expert judgment .Analogous estimating .Parametric estimating .Bottom-up estimating .Three-point estimating .Reserve analysis .Cost of quality .Project management software .Vendor bid analysis.Group decision-making techniques

.Activity cost estimates

.Basis of estimates

.Project documents updates


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TYPE OF COSTS 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 Not directly indentifiable, related to project product e.g. taxes, fringe benefit

Sunk Costs: is the cost that has already been incurred, and there is no way to recover

this cost.


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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


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7.3 DETERMINE BUDGETis the process of aggregating the estimated costs of

individual activities or work packages to establish an authorized cost baselineInputs Tool&Techniques Outputs


.Scope baseline

.Activity cost estimates

.Basis of estimates

.Project schedule

.Resource calendars

.Risk register

.Aggreements

.EEF

.OPA

.Cost aggregation

.Reserse Analysis

.Expert Judment

.Historical relationships

.Funding limit reconciliation

.Cost baseline

.Project funding requirements.Project documents updates


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MANAGEMENT RESERVE, CONTIGENCY RESERVE Contingency reserves: the cost impacts of the remaining risk Management reserves: extra fund to cover unforeseen risk or

changes to the project


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COST BASELINE is the approved version of the time-phased project budget,

excluding any management reserves, only be changed through formal change control procedures and is used as a basis for comparison to actual results.


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7.4 CONTROL COSTis the process of monitoring the status of the project to

update the project costs and managing changes to the cost baseline.Inputs Tool&Techniques Outputs

.Project management plan

. Project funding requirements.Work performance data.OPA

.Earned value management

.Forcasting

.To-complete performance index (TCPI).Performance reviews.Project management software.Reserse Analysis

.Work performance information.Cost forecast.Change requests.Project management plan updates.Project documents updates.OPA updates


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EARNED VALUE MANAGEMENT Method to measure project performance against scope, schedule

and cost baseline (performance measurement baseline) Importance measurement informations:

Cost Variance (CV) Schedule Variance (SV) Cost Performance Index (CPI) Schedule Performance Index (SPI)


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EARNED VALUE TECHNIQUE

Terms and Formulas Definition

Earned Value (EV) As of today, what is the estimated value of the work actually accomplished?

Actual Cost (AC) As of today, what is the actual cost incurred for the work accomplished?

Planned Value (PV) As of today, what is the estimated value of work planned to be done?

Cost Variance (CV)= EV - AC

Negative is over budgetPositive is under budget

Schedule Variance (SV)= EV - PV

Negative is behind schedulePositive is ahead schedule

Cost Performance Index (CPI) = EV/AC

We are getting $__ worth of work out of every $1 spent. Are funds being used efficiently?

Schedule Performance Index (SPI) = EV/PV

We are (only) progressing at __ percent of the rate originally planed

Example

$100K

$200K

$300K

$100K – $200K = ($100K)

$100K - $300K= ($200K)

$100K/$200K= 0.5 i.e. 50%

$100K/$300K= 0.33 i.e 33%

Example:Project Budget: $400KProject Schedule: 4 months

At the 3 month

checkpoint:Spent: $200KWork completed: $100K

Revised Total Duration Baseline Duration/Schedule Performance Index4/0.33

= 12 months


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EARNED VALUE TECHNIQUE (CON’T)

Terms and Formulas Definition

Budget at completion (BAC) How much did we BUDGET for the TOTAL project effort?

Estimate at Completion (EAC)= BAC / CPI

What do we currently expect the TOTAL project cost (a forecast)?

Estimate to Complete (ETC)= EAC - AC

From this point on, how much MORE do we expect it to cost to finish the project (a forecast)?

Variance at Completion (VAC)= BAC – EAC

As of today, how much over or under budget do we expect to be at the end of the project?


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EXAMPLE OF EVM

TIME

COST

ScheduleVariance (SV)

CostVariance(CV)

ACTUAL

PLAN

EARNVALUE

Estimate at Completion

(EAC)

Budget at Completion

(BAC)

Projection of schedule

delay at completion

Projection of cost

variance at

completion(VAC)

TODAY(Reporting

day)

BAC

EAC

AC

EV

PV


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EXAMPLE OF EVM


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TO-COMPLETE PERFORMANCE INDEX (TCPI) Helps the team determine the efficiency that

must be achieved on the remaining work for a project to meet a specified endpoint, such as BAC or the team’s revised EAC

TCPI AC)- (EAC or – AC)(BAC Remaining Funds

EV) – (BAC Remaining Work


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REVIEW Project cost management? 4 processes of time management?

Plan Cost Management Estimate Cost Determine Budget Control Cost

Type of costs? Quality/Accuracy of Cost Estimation? Management reserve? Contigency reserve? Cost baseline? CV? SV? CPI? SPI? BAC? EAC? ETC? VAC? TCPI?

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