P ex cost management-1
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This document discusses project cost management. It defines cost management as planning, estimating, budgeting, and controlling costs to complete a project within budget. Key aspects of cost management covered include cost estimating, budgeting, and control. Cost estimating techniques include analogous, bottom-up, parametric, and vendor bid analysis. Budgeting involves aggregating estimates and establishing contingency reserves. Control includes monitoring for cost variances, performance reviews, and change control. The overall goal of cost management is to inform stakeholders and take actions to prevent or address any expected cost overruns.
P ex cost management-1
- 1. March 19, 2014 Project Excellence – Cost Management Muhammad Saeed PMP
- 2. March 19, 2014 Cost Management
- 3. March 19, 2014 Cost Management The project excellence competence matrix has 10 competencies: • Client relationships • Expanding business • Commercial acumen • Commercial risk management • Leadership • Project management • Service delivery • Meeting statutory requirements • Design/solution coordination • Knowledge management
- 4. March 19, 2014 Cost Management • What is Project Cost Management ? A group of Halcrow processes involved in planning, estimating, budgeting, and controlling costs so that the project can be completed within the approved budget. • Project cost management is primarily concerned with the cost of the resources needed to complete project schedule activities
- 5. March 19, 2014 Cost Management • Cost Estimating • Cost Budgeting • Cost Control
- 6. March 19, 2014 Cost Estimating • Analogous estimating (Top Down estimating): Activity Duration Estimating. • 2. Determine Resource Cost Rate: The unit cost rates, such as staff cost per hour and bulk material cost per cubic yard should be known. • 3. Bottom-up estimating: This technique involves estimating the cost of individual activities or work packages, then summarizing or rolling up the individual estimates to get a project total. • 4. Parametric Estimating: Is a technique that uses a statistical relationship between historical data and other variables (e.g. square footage in construction, lines of code in software development, required labor hours) to calculate a cost estimate for a schedule activity resource.). • 5. Project Management Software: Computerized tools, such as cost estimating software applications, computerized spreadsheets and simulation/statistical tools, are widely used to assist with cost estimating
- 7. March 19, 2014 Cost Estimating • 6. Vendor Bid Analysis. • 7. Reserve Analysis: Estimates should include reserves, also called contingencies (estimated costs to be used at the discretion of the project manager to deal with anticipated, but not certain, events, (“known unknowns”)
- 8. March 19, 2014 Cost Estimating • Accuracy of Cost Estimates • Order of Magnitude Estimate – Cost estimating done during the concept phase. – The accuracy of estimates made at this time can only be: from -25% to +75% (AED 10,000 ± = from AED 7,500 to 17,500). • Budget Estimate – Cost estimating done during Early Project Planning Phase. – The accuracy of estimates made at this time can only be: from -10% to +25% (from AED 9,000 to AED 12,500). • Definitive Estimate – Cost estimating done during End of Planning Phase – The accuracy of estimates made at this time can only be: from -5% to +10% (from AED 9,500 to AED 11,000).
- 9. March 19, 2014 Cost Budgeting • Cost Budgeting • . Cost Aggregation: Schedule activity cost estimates are aggregated by work packages in accordance with the WBS. The work package cost estimates are then aggregated for the higher component levels of the WBS, such as control accounts, and ultimately for the entire project. • 2. Reserve Analysis: Establishes contingency reserves, such as the management contingency reserve, that are allowances for unplanned, but potentially required, changes “unkown unkowns”. Project manager must obtain approval before obligating or spending this reserve. IT IS NOT PART OF PROJECT COST BASELINE. • 3. Parametric modeling: Using project characteristics (or parameters) in a mathematical model to predict total project costs. Models can be simple or complex. The model is likely to be reliable if: – The historical information used to develop the model is accurate. – The parameters used in the model are readily quantifiable. – The model is scalable such that it works as well for a very large project as well as a small one.
- 10. March 19, 2014 Cost Budgeting • 4. Funding Limit Reconciliation: Large variations in the periodic expenditure of funds are usually undesirable for organizational operations, Therefore, the expenditure of funds is reconciled with the funding limits set by the customer or performing organization on disbursement of funds for the project.
- 11. March 19, 2014 Cost Control • Cost Control What is Cost Control?:- – Influencing the factors that create changes to the cost baseline. – Ensuring requested changes are agreed upon. – Assuring that potential cost overruns do not exceed the authorized funding periodically and in total for the project. – Monitoring cost performance to detect variances from the cost baseline. – Recording all appropriate changes accurately against the cost baseline – Preventing incorrect, inappropriate, or unapproved changes from being included in the reported cost or resource usage. – Informing the appropriate stakeholders of approved changes. – Acting to bring expected cost overruns within acceptable limits. – Project cost control searches out the causes of positive and negative variances and is part of Integrated Change Control
- 12. March 19, 2014 Cost Control Cost control • 1. Cost change control system: Procedures by which the cost baseline can be changed. It includes: – Forms – Documentation – Tracking system. – Approval levels necessary for authorizing changes. – 2. Performance measurement Analysis: Helps to assess the magnitude of any variances that will invariably occur, in addition to the cause of the variance, and to decide if the variance requires corrective action. The Earned Value Technique (EVT) compares the cumulative value of the budgeted cost of work performed (earned) at the original allocated budget amount to both the budgeted cost of work scheduled (planned) and to the actual cost of work performed (actual).
- 13. March 19, 2014 Cost Control • 4. Project Performance Reviews: Are meetings held to compare cost performance over time, schedule activities or work packages overrunning and under running budget (planned values), milestones due, and milestones met. They are used in conjunction with: – Variance Analysis: Comparing actual project performance to planned or expected performance. – Trend Analysis: Involves examining project performance over time to determine if performance is improving or deteriorating. – Earned value technique: Compares planned performance to actual performance. • 5. Project Management Software: Such as computerized spreadsheets, is often used to monitor PV versus AC, and to forecast the effects of changes or variances. • 6. Variance Management: The cost management plan describes how cost variances will be managed, for example, having different responses to major or minor problems
- 14. March 19, 2014 Cost Management
- 15. March 19, 2014 Cost Management Questions?
- 16. March 19, 2014 How to join Project Excellence • Approach someone you know is a PEx mentor directly Full list of mentors on the PEx Halnet site (recommended approach) • Speak to your Regional or BG PEx champion or your office PEx leader and ask them for advice in recommending a mentor. • Send an e-mail to the projectexcellence@halcrow.com to register your interest. Names on this list are passed on to new mentors seeking mentees. Note that this approach has the least chances of finding a mentor for you quickly.
- 17. March 19, 2014 References • Halnet • Project Excellence (PEx) Web site • Project management Institute (PMI)
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