Project Cost Management
Project Cost Management
Price
Profit
PRICING: Assessing how much the
organization will charge for the
product or service
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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
9- Project Resource Management 9.1 Plan Resource Management 9.3 Acquire Resources 9.6 Control Resources
9.2 Estimate Activity Resources 9.4 Develop Team
9.5 Manage Team
10- Project Communications 10.1 Plan Communications Management 10.2 Manage Communications 10.3 Monitor Communications
Management
11- Project Risk Management 11.1 Plan Risk Management 11.6 Implement Risk Responses 11.7 Monitor Risks
11.2 Identify Risks
11.3 Perform Qualitative Risk Analysis
11.4 Perform Quantitative Risk Analysis
11.5 Plan Risk Responses
12- Project Procurement Management 12.1 Plan Procurement Management 12.2 Conduct Procurements 12.3 Control Procurements 4
13- Project Stakeholder Management 13.1 Identify Stakeholders 13.2 Plan Stakeholder Engagement 13.3 Manage Stakeholder 13.4 Monitor Stakeholder
Engagement Engagement
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 = ??? X 3 tables = $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
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EARNED VALUE COMPONENTS
PLANNED VALUE (PV) – OLD NAME WAS (BCWS) BUDGET COST OF WORK SCHEDULED
EARNED VALUE (EV) – OLD NAME WAS (BCWP) BUDGET COST OF WORK PERFORMED
ACTUAL COSTS (AC) – OLD NAME WAS (ACWP) ACTUAL COST OF WORK PERFORMED
EV (BCWP) Earned Value What is the estimated value of the work actually BCWP: Budgeted cost of
accomplished? work performed
AC (ACWP) Actual Cost What is the actual cost incurred? ACWP: Actual cost of work
performed
BAC Budget at Completion How much did we BUDGET for the TOTAL JOB?
ETC Estimate to Complete From this point on, how much MORE do we expect to
cost to finish the project?
Cost Performance Index (CPI) CPI = EV/AC We are getting $ _____ out of every 1
$.
Schedule Performance Index (SVI) SPI = EV/PV We are only progressing at ____% of
the rate originally planned.
Estimate To Complete (ETC) EAC - AC How much more will the project cost?
Variance At Completion (VAC) BAC – EAC How much over budget will be at the
end of the project?
FORECASTING
EAC FORECAST FOR ETC AT NEW ESTIMATE
EAC = AC+ETC
90+ 300 = 390
EAC FORECAST FOR ETC WORK PERFORMED AT THE BUDGETED RATE
EAC = AC+(BAC-EV )
= 90+ (400-60)=430
EAC FORECAST FOR ETC WORK CONSIDERING BOTH SPI AND CPI FACTORS
EAC =AC+((BAC-EV) /(CPI*SPI))
=90 +((400 – 60 )/ (.495 )) = 770
EAC FORECAST FOR WORK PERFORMED AT THE PERCENT CPI
EAC = BAC/ CPI
=400 / .66 = 600
EACT FORECAST FOR THE DURATION OF THE PROJECT
EACT = PD/SPI
=20 / .75 = 27 DAYS
Earned
EARNED Value
VALUE (CONT.)
(Cont.)
Estimate at Completion (EAC) As of now, how much do we expect the total project to
cost?$_____
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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
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5 pm Wednesday, Week 2
10 %
What is the budgeted
value of actual work - EV?
EARNED
Wall 1 100% = $ 1,000
Wall 2 50% = $ 500
Wall 3 10% = $100
Wall 4 0% = 0
50 % EV = $1,600
5 pm Wednesday, Week 2
Schedule Variance = EV - PV
= $1,600 - $1,800
= ($200)
Cost Variance = EV - AC
= $1,600 - $2,250
= ($650)
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
QUESTIONS & ANSWERS EV
1. YOU ARE A PROJECT MANAGER WORKING ON A PROJECT THAT REQUIRES 100 WIDGETS TO BE BUILT
IN FIVE WEEKS. YOU HAVE JUST BEGUN WEEK THREE, WITH AN OVERALL BUDGET OF US $10,000.
TO DATE YOU HAVE SPENT US $2,000 WITH 40 WIDGETS SUCCESSFULLY BUILT. WHAT DOES THE
COST VARIANCE TELL YOU IN THIS CIRCUMSTANCE?
1. YOU ARE A PROJECT MANAGER WORKING ON A PROJECT THAT REQUIRES 100 WIDGETS TO BE BUILT
IN FIVE WEEKS. YOU HAVE JUST BEGUN WEEK THREE, WITH AN OVERALL BUDGET OF US $10,000.
TO DATE YOU HAVE SPENT US $2,000 WITH 40 WIDGETS SUCCESSFULLY BUILT. WHAT DOES THE
COST PERFORMANCE INDEX TELL YOU IN THIS CIRCUMSTANCE?
2. YOU ARE A PROJECT MANAGER FOR A SMALL CONSTRUCTION PROJECT. YOUR PROJECT WAS
BUDGETED FOR US $72,000 OVER A SIX WEEK PERIOD. AS OF TODAY, YOU'VE SPENT US $22,000 OF
YOUR BUDGET TO COMPLETE WORK THAT YOU ORIGINALLY EXPECTED WOULD COST US $24,000.
ACCORDING TO YOUR SCHEDULE, YOU SHOULD HAVE SPENT US $21,000 BY THIS POINT. BASED ON
THESE CIRCUMSTANCES, YOUR PROJECT COULD BE BEST DESCRIBED AS:
A. OVER BUDGET
B. ON BUDGET
C. UNDER BUDGET
D. NOT HAVING ENOUGH INFORMATION PROVIDED
QUESTIONS & ANSWERS EV
A. AT THIS TIME, WE EXPECT THE TOTAL PROJECT TO COST 89% MORE THAN PLANNED.
B. WHEN THE PROJECT IS COMPLETED WE WILL HAVE SPENT 89% MORE THAN PLANNED.
C. THE PROJECT IS ONLY PROGRESSING AT 89% OF THAT PLANNED.
D. THE PROJECT IS ONLY GETTING 89 CENTS OUT OF EVERY DOLLAR INVESTED.
QUESTIONS & ANSWERS EV
Given:
BAC = 200
AC = 120
EV = 80
CPI = 0.666
Assuming that current variances are typical of
future variances, the estimate at completion
(EAC) is:
A. 220.
B. 260.
C. 300.
D. 320.
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Questions & Answers EV
1. Given:
BAC = 200
AC = 120
EV = 80
CPI = 0.666
Assuming that current variances are atypical , the
estimate at completion (EAC) is:
A. 120.
B. 160.
C. 300.
D. 240.
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Types Of Costs
Direct Costs
Indirect costs
Fixed costs
Variable costs
Opportunity costs
Sunk costs
Working Capital
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DEPRECIATION
Accelerated Depreciation
There are two forms of accelerated depreciation:
1.Double Declining Balance
2.Sum of the Years Digits.
They depreciate faster than straight line.
You do not have to know what these two forms means or
do any calculations.
PRESENT VALUE
Budgeting technique that debates the future Year FV PV
0 $50,000 $50,000
value of money based on inflation, etc. 1 $35,000 $31,819
2 $15,000 $12,397
PV = FV
Assume a 10% interest (discount rate)
(1 + r)t
PV (Year 1) = FV / (1 + r)t
FV = amount of money t years from now
=$35,000/(1 + 0.1)1
= $31,819
r = interest rate (also called “discount rate”)
t = time period
NET PRESENT VALUE (NPV)
This Means the total benefits (income or revenue) less the cost. To calculate NPV you need to
calculate the present value of each of the income and revenue figures then add up the present
values.
0 0 0 200 200
1 50 45 100 91
2 100 83 0 0
3 300 225 0 0
NPV =353-291=62
NET PRESENT VALUE (NPV)
This Means the total benefits (income or revenue) less the cost. To calculate NPV you need to
calculate the present value of each of the income and revenue figures then add up the present
values.
0 0 0 200 200
1 50 45 100 91
100
2 83 100 83
3 300 225 0 0
4 100 55 0 0
5 100 45 0 0
NPV =453-374=79
PAYBACK PERIOD
The exact length of time needed to recover an initial investment as calculated
from cash inflows.
Compares the cost to the benefits of different The interest (discount) rate where the present
projects. A BCR of > 1 means the benefits are value of the benefits exactly equals the costs.
grater than the costs. A BCR of < 1 means the The higher the rate, the better the project.
costs are grater than the benefits. A BCR =1
An IRR of 0.15 means that you expect the
means the costs and benefits are the same.
project to return an average of 15% on your
If the BCR of project A is 2.3 and BCR of project B investment over a given time period (usually a
is 1.7 which project would you select? number of years).
Payback 21 16 B
Period Month Month
sub1 Sub2
LIFE CYCLE COSTING : Means that the cost of operation and maintenance phase to be
consider and manage with the project cost
costs costs
TAILORING CONSIDERATION
KNOWLEDGE MANAGEMENT
GOVERNANCE
CONSIDERATION FOR AGILE/ADAPTIVE ENVIRONMENT
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PLAN COST MANAGEMENT
Inputs Tools & Techniques Outputs
1. Project charter 1. Expert judgment 1. Cost management Plan
3. Enterprise environmental
factors (EEF)
4. Organizational process
assets (OPA)
ESTIMATE COSTS
AC
PV CV= EV - AC
SV= EV - PV
EV
Time
CONTROL COST
Inputs Tools & Techniques Outputs
1. Project manage. Plan 1. Expert Judgment 1.Work performance info.
•Cost manage. Plan 2. Data analysis 2.Cost forecasts
•Cost baseline •Earned value 3.Change requests
•Performance measurement management 4.Project Management Plan
baseline •Variance analysis updates
2. Project documents •Trend analysis •Cost manage. Plan
•Lessons learned register •Reserve analysis •Cost baseline
3. Project funding requirements 3. To-complete performance •Performance measurement
4. Work performance data index (TCPI) baseline
5. OPA 4. Project management info. 5. Project documents updates
System • Assumption log
• Basis of estimates
• Cost estimates
• Lessons learned register
• Risk register
CONTROL COSTS: INPUTS
COST MANAGEMENT PLAN. DESCRIBES HOW THE PROJECT COSTS WILL BE MANAGED AND CONTROLLED.
COST BASELINE. IS COMPARED WITH ACTUAL RESULTS TO DETERMINE IF A CHANGE, CORRECTIVE ACTION, OR PREVENTIVE ACTION IS NECESSARY.
PERFORMANCE MEASUREMENT BASELINE.. WHEN USING EARNED VALUE ANALYSIS, THE PERFORMANCE MEASUREMENT BASELINE IS COMPARED TO ACTUAL
RESULTS TO DETERMINE IF A CHANGE, CORRECTIVE ACTION, OR PREVENTIVE ACTION IS NECESSARY.
WORK PERFORMANCE DATA SUCH AS WHICH COSTS HAVE BEEN AUTHORIZED, INCURRED, INVOICED, AND PAID.
To-Complete Performance index
(TCPI)
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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.
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2 - WHICH TYPE OF COSTS IS TEAM TRAINING?
A ) DIRECT
B ) EV
C ) INDIRECT
D ) FIXED
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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.
A ) EARNED VALUE
B ) PLANNED VALUE
C ) ACTUAL COST
D ) ESTIMATE TO COMPLETE
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6- 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.
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8- 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
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9- A COST PERFORMANCE INDEX (CPI) OF 0.89 MEANS ?
A ) AT THIS TIME ,WE EXPECTED THE TOTAL PROJECT TO COST 89 PERCENT MORE THAN PLANNED.
B ) WHEN THE PROJECT COMPLETED WE WILL HAVE SPENT 89 PERCENT MORE THAN PLANNED.
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10- A COST BASE LINE IS AN OUTPUT OF WHICH COST MANAGEMENT
PROCESSES:
B ) ESTIMATE COSTS.
C) DETERMINE BUDGET.
D ) CONTROL COST.
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