![31
Forecasting
Estimate At Completion (EAC) actual costs incurred for work completed, plus an
estimate to complete (ETC) the remaining work.
EAC = ( AC + ETC )
EAC forecast for ETC work performed at the budgeted rate
EAC = AC + ( BAC – EV )
= 90 + ( 400 – 60 ) = $430
EAC forecast for work performed at the percent CPI
EAC = BAC / CPI
= 400 / .66 = $606.6
EAC forecast for ETC work considering both SPI and CPI factors
EAC = AC + [ ( BAC – EV ) / ( CPI * SPI ) ]
= 90 + [ (400 – 60 ) / ( 0.75 * 0.66 ) ]
= $868.68](https://image.slidesharecdn.com/4-projectcostmanagement-240212091313-413c174d/85/4-Project-Cost-Management-ppt-31-320.jpg)
4- Project Cost Management.ppt
- 2. Project cost management • Project cost management includes the processes involved in estimating, budgeting, and controlling costs so that the project can be completed within the approved budget • It is primarily concerned with the cost of the resources needed to complete schedule activities • Should consider the information needs of the project stakeholders • With proper planning, you can: • Adjust the project plan to conform to the budget • Track and manage cost once the project execution begins • Compare actual cost to the original planned cost and analyze any variances between the two 2
- 3. Knowledge Areas Initiating Planning Executing Monitoring & Controlling Closing Develop project charter Develop project management plan Direct and manage project execution Monitor and control project work Close project or phase perform Integrated change control Collect requirements Varify Scope define scope Control Scope Create WBS Define activities Control schedule sequence Activity Estimate acitivity resources Estimate activity durations Develop schedule Estimate costs Control costs Determine budget Project Quality Management Plan quality Perform quality assurance Perform quality control Develop human resource plan Acquire project team Develop project team Manage project team Identify stakeholders Plan communications Distribute information Report performance Manage stakeholder expectations Stakeholders Plan risk management Monitor and control risks Identify risks Perform qualitative risk analysis Perform Quantitative risk analysis Project Management Process Groups Project Integration Mangement Project Scope Management Project Time Management Project Cost Management Project Human Resource Management Project Communications Management Project Risk Management
- 4. Cost Management Plan • The planning effort of the processes of the Cost Management Plan is a part of the develop project management plan ( Cost management plan can establish the following ) • Precision level - The prescribed precision for rounding data related to schedule activity cost estimates • Units of measure - Define units of measurement for each of the resources • Organizational procedure links - The WBS component used for the project cost accounting is called a control account (CA); each CA is assigned a code or account number • Control thresholds - Variance thresholds for cost at designated time points in the project to indicate the agreed to amount allowable variance 4
- 5. • The planning effort of the processes of the Cost Management Plan is a part of the develop project management plan ( Cost management plan can establish the following ) • Reporting formats - The format for various cost reports • Process descriptions - Descriptions of each of the three cost management processes 5 Cost Management Plan
- 6. 6 7.1 Estimate Costs The process of developing an approximation (estimate) of the cost of the resources needed to complete each schedule activity • Estimator must consider the possible causes of variation of cost estimates, including risks • Includes identifying and considering various costing alternatives • Costs for schedule activities are estimated for all resources that will be charged to the project
- 7. 7 Scope Baseline Project Schedule The type and quantity of resources and the amount of time which those resources are applied to complete the work of the project are major factors in determining the project cost. Human Resource Plan Project staffing attributes, personnel rates, and related rewards/recognition 7.1 Estimate Costs (Inputs)
- 8. 8 Risk Register The risk register should be reviewed to consider risk mitigation costs. Enterprise Environmental Factors • Market conditions. • Published commercial information. Organizational Process Assets • Cost estimating policies, • Cost estimating templates, • Historical information, and • Lessons learned. 7.1 Estimate Costs (Inputs)
- 9. 9 • Expert judgment • Analogous Estimating • Parametric Estimating • Bottom-Up Estimating • Three-Point Estimates • Reserve Analysis • Cost of Quality (COQ) • Project Management Estimating software • Vendor Bid Analysis 7.1 Estimate Costs (Tools & Techniques)
- 10. 10 • Activity Cost Estimates • Basis of Estimates • Project Document Updates 7.1 Estimate Costs (Outputs)
- 11. 11 Inputs • Enterprise Environmental Factors • Organizational Process Assets • Scope baseline • Project schedule • Human resource plan • Risk register. Tools & Techniques • Analogous estimating • Expert judgment • Bottom-up estimating • Parametric estimating • Project Management Software • Vendor Bid Analysis • Reserve Analysis • Cost of Quality • Three-point estimate Outputs • Activity Cost estimates • Basis of estimates • Project document updates 7.1 Estimate Costs
- 13. 13 • Determine Budget is the process of aggregating the estimated costs of individual activities or work packages to establish an authorized cost baseline. • This baseline includes all authorized budgets, but excludes management reserves. • Project budgets constitute the funds authorized to execute the project. • Project cost performance will be measured against the authorized budget. 7.2 Determine Budget
- 14. 14 Activity Cost Estimates (Inputs) Basis of Estimates (Inputs) Scope Baseline (Inputs) Project schedule (Inputs) Resource Calendars (Inputs) Contracts (Inputs) Organizational Process Assets (Inputs) • Existing formal and informal cost budgeting-related policies, procedures • Cost budgeting tools, 7.2 Determine Budget
- 15. 15 Cost Aggregation (Tool) • Schedule activity cost estimates are aggregated by work packages in accordance with the WBS • Work package cost estimates are then aggregated for the higher component levels of the WBS, such as the control account, and ultimately for the entire project Funding Limit Reconciliation (Tool) • The expenditure of funds should be reconciled with any funding limits on the commitment of funds for the project. 7.2 Determine Budget
- 16. 16 1. Activity estimates 2. Work package estimates 3. Control Account estimates 4. Project estimates 5. Contingency reserves 6. Cost baseline 7. Management reserves 8. Cost budget 7.2 Determine Budget
- 17. 17 Reserve Analysis (Tools) Expert judgment (Tools) Historical Relationships (Tools) 7.2 Determine Budget
- 18. 18 Cost Performance Baseline (Output) • The cost performance baseline is an authorized time-phased budget at completion (BAC) used to measure, monitor, and control overall cost performance on the project. • It is developed as a summation of the approved budgets by time period and is typically displayed in the form of an S-curve Project Funding Requirements (Output) • Total funding requirements and periodic funding requirements (e.g., quarterly, annually) are derived from the cost baseline. • The cost baseline will include projected expenditures plus anticipated liabilities. • Funding often occurs in incremental amounts that are not continuous, which appear as steps 7.2 Determine Budget
- 20. 20 Inputs • Activity cost estimates • Basis of estimates • Scope baseline • Project schedule • Resource calendars • Contracts • Organizational process assets Tools & Techniques • Cost Aggregation • Reserve Analysis • Historical relationships • Expert judgment • Funding Limit Reconciliation Outputs • Cost performance baseline • Project Funding Requirements • Project document updates 7.2 Determine Budget
- 22. 22 7.3 Control Costs Control Costs is the process of monitoring the status of the project to update the project budget and managing changes to the cost baseline. Project cost control includes: • Influencing the factors that create changes to the authorized cost baseline, • Ensuring that all change requests are acted on in a timely manner, • Managing the actual changes when and as they occur, • Ensuring that cost expenditures do not exceed the authorized funding, by period and in total for the project, • Monitoring work performance against funds expended,
- 23. 23 Project Management Plan (Input) The project management plan contains the following information that is used to control cost: • Cost Performance Baseline. • Cost Management Plan. Organizational Process Assets (Input) • Existing formal and informal cost control-related policies, procedures, • Cost control tools; and • Monitoring and reporting methods to be used Project Funding Requirements (Input) Work Performance Information (Input) 7.3 Control Costs
- 24. 24 • Earned Value Management (Tools) • Forecasting (Tools) • To-Complete Performance Index (TCPI) (Tools) • Performance Reviews (Tools) • Variance Analysis (Tools) 7.3 Control Costs
- 25. 25 Inputs • Project management plan • Project Funding Requirements • Work Performance Information • Organizational process assets Tools & Techniques • Earned value management • Performance measurement Analysis • Forecasting • To-complete performance index (TCPI) • Performance Reviews • Project Management Software • Variance analysis Outputs • Work Performance Measurements • Budget forecasts • Change requests • Recommended Corrective action • Organizational Process Assets (Updates) • Project management plan (Updates) • Project document (Updates) 7.3 Control Costs
- 27. 27 Earned Value Management Analysis Earned value technique (EVT) Compares the cumulative value of the budgeted cost of work Earned to both 1. The budgeted cost of work scheduled (planned) 2. The actual cost or work performed (actual) An important part of Cost Control is to determine the cause of a variance, the magnitude of the variance, and to decide if the variance requires corrective action EVT uses the Cost Baseline contained in the project management plan to assess project progress and the magnitude of any variations that occur
- 28. 28 • Earned Value. (EV) Value of work performed expressed in terms of the approved budget • Planned Value. (PV) Authorized budget assigned to the work to be accomplished for an activity or work breakdown structure component. • Actual Cost. (AC) Total cost actually incurred and recorded in accomplishing work performed for an activity or work breakdown structure component. • Schedule Variance (SV) is a measure of schedule performance on a project. SV = ( EV – PV ) • Cost Variance (CV) is a measure of cost performance on a project. CV = ( EV – AC ) Earned Value Management Analysis
- 29. 29 • Schedule performance index (SPI) Is a measure of progress achieved compared to progress planned on a the project. SPI = ( EV / PV ) • Cost performance index (CPI) Is a measure of the value of work completed compared to the actual cost on the project. CPI = ( EV / AC ) Earned Value Management Analysis
- 30. 30 Example We are about to produce 20 tables in 20 days cost is $20 for each. How much BAC = ??? BAC = $20 * 20 tables = $400 Today is day 4 How much is the PV ? PV = $20 x 4 tables = $80 At day 4 i earned only 3 tables, how much is the EV ? EV = $20 x 3 tables = $60 AC = $90 SV = EV – PV = 60 – 80 = -$20 CV =EV – AC = 60 – 90 = -$30 SPI = EV / PV = 60 / 80 = 0.75 CPI = EV / AC = 60 / 90 = 0.666 Earned Value Management Analysis
- 31. 31 Forecasting Estimate At Completion (EAC) actual costs incurred for work completed, plus an estimate to complete (ETC) the remaining work. EAC = ( AC + ETC ) EAC forecast for ETC work performed at the budgeted rate EAC = AC + ( BAC – EV ) = 90 + ( 400 – 60 ) = $430 EAC forecast for work performed at the percent CPI EAC = BAC / CPI = 400 / .66 = $606.6 EAC forecast for ETC work considering both SPI and CPI factors EAC = AC + [ ( BAC – EV ) / ( CPI * SPI ) ] = 90 + [ (400 – 60 ) / ( 0.75 * 0.66 ) ] = $868.68
- 32. 32 To-Complete Performance Index (TCPI) The calculated projection of cost performance that must be achieved on the remaining work to meet a specified management goal, such as the BAC or the EAC. Work Remaining / Funds Remaining Work Remaining = ( BAC – EV ) Funds Remaining = ( BAC – AC ) Or ( EAC – AC ) TCPI = ( 400 – 60 ) / ( 400 – 90 ) = 1.096 OR TCPI = (400 – 60 ) / ( 606 – 90 ) = 0.658
- 33. 33 Project Performance Management Time Cost BAC EAC Data date PV AC EV SV= EV - PV CV= EV - AC
- 34. Exercise . 34
- 35. 35 Example - Wall Construction Wall Construction Time = 1 week per wall Cost = $ 1,000 per wall, materials and labor Total Schedule = 4 weeks Total Cost = $ 4,000 Working days 5 day per week starting on Sunday and finish on Thursday by 5 PM Assume production is liner
- 36. 36 Wall 1 100% = $ 1,000 Wall 2 80% = $ 800 Wall 3 0% = 0 Wall 4 0% = 0 PV = $ 1,800 How much work should have been completed - PV? 5 pm Wednesday, Week 2 PLANNED
- 37. 37 Wall 1 100% = $ 1,000 Wall 2 50% = $ 500 Wall 3 10% = $100 Wall 4 0% = 0 Total = $1,600 5 pm Wednesday, Week 2 What is the budgeted value of actual work - EV? 10 % 50 % EARNED
- 38. 38 5 pm Wednesday, Week 2 Total Cost to date – AC = $ 2,250
- 39. 39 5 pm Wednesday, Week 2 Earned Value PV $1,800 EV $1,600 AC $2,250 Schedule Variance = EV - PV = $1,600 - $1,800 = ($200) Cost Variance = EV - AC = $1,600 - $2,250 = ($650)
- 40. 40 5 pm Wednesday, Week 2 Performance Indices PV $1,800 EV $1,600 AC $2,250 SPI = EV / PV = $1,600 / $1,800 = .9 CPI = EV / AC = $1,600 / $2,250 = .7
- 41. Questions 41
- 42. 1- Half way through the executing processes of your project, a team member alerts you to a potential cost overrun for a specific deliverable. What do you do first? A ) Determine the projected actual cost. B ) Implement a change control process to track the change C ) Inform the customer. D ) Determine the cause of the overage 42
- 43. 1- Half way through the executing processes of your project, a team member alerts you to a potential cost overrun for a specific deliverable. What do you do first? A ) Determine the projected actual cost. B ) Implement a change control process to track the change C ) Inform the customer. D ) Determine the cause of the overage 43
- 44. 2 - Which type of costs is team training? A ) Direct B ) E V C ) Indirect D ) fixed 44
- 45. 2 - Which type of costs is team training? A ) Direct B ) E V C ) Indirect D ) fixed 45
- 46. 3- 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. 46
- 47. 3- 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. 47
- 48. 4- 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 48
- 49. 4- You are having difficulty estimating the cost of your project. Whish 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 49
- 50. 5- Which of the following represents the value of work we have actually completed? A ) Earned value B ) Planned value C ) Actual cost D ) Estimate to complete 50
- 51. 5- Which of the following represents the value of work we have actually completed? A ) Earned value B ) Planned value C ) Actual cost D ) Estimate to complete 51
- 52. 6- While completing your project, you realized that you need to decrease the project costs. After researching your options, you came up with the following choices. Which choice would DECREASE project costs? A ) Change to component A from component B. component A costs more to purchase, but has a lower life cycle cost than B. B ) Change activity A to be completed by resource B instead of resource c. resource B is more experienced worker. C ) Move activities B and H to occur concurrently, and accept a 30 percent increase in the risk that five more resources will be needed later. D ) Remove a test from the project management plan. 52
- 53. 6- While completing your project, you realized that you need to decrease the project costs. After researching your options, you came up with the following choices. Which choice would DECREASE project costs? A ) Change to component A from component B. component A costs more to purchase, but has a lower life cycle cost than B. B ) Change activity A to be completed by resource B instead of resource c. resource B is more experienced worker. C ) Move activities B and H to occur concurrently, and accept a 30 percent increase in the risk that five more resources will be needed later. D ) Remove a test from the project management plan. 53
- 54. 7- If earned value (EV) is U.S.$300000, actual cost (AC) is U.S.$350000, and planned value (PV) is U.S. $375000, what does the schedule performance index (SPI) indicate? A ) You are progressing at 86% of the rate originally planned. B ) You are progressing at 125% of the rate originally planned. C ) You are progressing at 116% of the rate originally planned. D ) You are progressing at 80% of the rate originally planned. 54
- 55. 7- If earned value (EV) is U.S.$300000, actual cost (AC) is U.S.$350000, and planned value (PV) is U.S. $375000, what does the schedule performance index (SPI) indicate? A ) You are progressing at 86% of the rate originally planned. B ) You are progressing at 125% of the rate originally planned. C ) You are progressing at 116% of the rate originally planned. D ) You are progressing at 80% of the rate originally planned. 55
- 56. 8- The formula, EAC = BAC/CPI, assumes that: A ) All subsequent work will be completed at the planned expenditures. B ) All subsequent work will be completed at the planned expenditures, excluding the work packages currently under way C ) All subsequent work will be completed based upon the cost performance to-date D ) The cost performance cannot change during the project 56
- 57. 8- The formula, EAC = BAC/CPI, assumes that: A ) All subsequent work will be completed at the planned expenditures. B ) All subsequent work will be completed at the planned expenditures, excluding the work packages currently under way C ) All subsequent work will be completed based upon the cost performance to-date D ) The cost performance cannot change during the project 57
- 58. 9- Feasibility study answers the question “can we do it?” cost benefit analysis answer the question--------- A ) Should we do it? B ) Are the safety risks acceptable? C ) Is it beneficial to have a high level sponsor? D ) Does the technology exist? 58
- 59. 9- Feasibility study answers the question “can we do it?” cost benefit analysis answer the question--------- A ) Should we do it? B ) Are the safety risks acceptable? C ) Is it beneficial to have a high level sponsor? D ) Does the technology exist? 59
- 60. 10- What tool must project managers rely upon to accurately identify the costs associated with the project? A ) A bill of materials B ) A Gantt chart C ) A precedence diagram network D ) A work breakdown structure 60
- 61. 10- What tool must project managers rely upon to accurately identify the costs associated with the project? A ) A bill of materials B ) A Gantt chart C ) A precedence diagram network D ) A work breakdown structure 61
- 62. Thank you . 62