#7 P ro j e c t

C o s t

PMBOK 6 Ed. – DEI-

 The process required to
manage the project on
budget and get the profit

PROJECT COST MANAGEMENT

“Cost estimating, budgeting, and
control should be the concern of
everyone”
IT change initiatives in almost 1,500
projects and reported an average
cost overrun of 27 percent!
(harvard,2011)
How to get the
profit and the
budgets stay
on the track?
The answer is...
Plan Cost Management
Estimate Costs

Determine Budget
Control Costs
 Monitoring &
Controlling Processes
Planning
Processes

Enter phase/ Initiating Closing Exit phase/

Start project Processes Processes End project

Executing
Processes

Knowledge
Process
Area Monitoring &
Initiating Planning Executing Closing
Control
Plan Cost
Scope Cost Estimating Control Cost
Cost Budgeting
• Cost estimates, budgets, WBSs, and schedules are
interrelated.
• When the cost cannot be estimated because it is
too complex, the task is broken down further
until it can.
 Plan Cost Management

“Determining the policies,

procedures, and documentation to
manage budget”
 Inputs Tools &
Techniques Outputs
1.Project Charter
2.Project 1.Expert Judgment 1.Cost
Management 2.Data Analysis Management
Plan 3. Meetings Plan
3.EEF
4.OPA
Units of Measure M
C A
Level of Precision
O N P
Level of Accuracy
A L
Organizational Procedures Links S G
Control Thresholds T E A
M N
Rules of Performance Measurament
E
Reporting Formats N
Additional Details T
 Estimate Cost

“The process of developing

approximation of the cost resources
needed to complete project work”.
 Tools &
Inputs Techniques Outputs
1.Cost 1. Expert Judgment 1. Cost Estimates
Management 2. Analogous Estimating
3. Parametric Estimating 2. Basis of
Plan Estimates
4. Bottom-up Estimating
2.Project 5. Three-point Estimates 3.Project
Documents 6. Data Analysis Document
3.EEF 7. Project Management Updates
4.OPA Information System
8. Decision Making
Types of Cost
• Variable Costs • Fixed Costs
– Change with the –Do not change
amount of as production
production/work change
– e.g. material, – e.g. set-up, rental
supplies, wages
Types of Cost
• Direct Costs • Indirect Costs
– Directly – overhead or cost
attributable to the incurred for benefit
work of project of more than one
– e.g. team travel, project
recognition, team – e.g. taxes, fringe
wages benefit, janitorial
services
 Quality/Accuracy of Cost Estimation

Estimate Accuracy
• Most difficult to estimate as very little project info
is available, made during initiating process
Rough Order • Project selection decisions.
--25%
50%
of Magnitude +75% • Very early in the project life cycle, often 3–5 years
+100%
(ROM) before project completion

• allocate money into an organization’s budget.

• Used to finalize the Request for Authorization
Budget -10%
(RFA), and establish commitment, made during
Estimate +25% planning phase
• Early, 1–2 years out
• Used for making many purchasing decisions
Definitive -10% • Estimate actual cost, during the project and
Estimate 10% refined
• Later in the project, less than 1 year out
 conformance
Cost of <
Quality Non
conformance
 Analogous (Top Down Estimating)
Advantage Disadvantage
1. activities don not need 1. Less accurate
to be identified 2. Estimate are prepared
2. Less costly with limited
3. Cost constraints information of project
created by 3. Requires experiences
management 4. Extremely difficult for
high uncertainty
project
 Bottom up Estimating
Advantage Disadvantage
1. More accurate 1. Takes time and money
2. Gains team buy-in 2. Tendency for padding
3. Based on detail 3. Requires the project to
analysis be defined well
4. Provide basis of M&C 4. Requires time to break
down into small pieces
Conformance

Money spent during the project to

avoid failure. Prevention cost &
Appraisal cost
Non-Conformance

Money spent during and after the

project because of failure. internal
cost & external cost
Contractor’s / seller’s Estimate Cost example:
Problem in estimating cost
Estimates too quickly
Large projectbig effort
People lack estimating experience.
Capability, cumulative experience,
training
 Human beings
are biased
toward
underestimation.
Senior vs junior
Management desires accuracy.
Shorter timenegotiate
Determine Budget

“Aggregating the estimated

costs of individual activities or
work packages to establish an
authorized cost baseline”.
 Inputs Tools &
Techniques Outputs
1. Project
Management Plan 1.Expert Judgment 1.Cost Baseline
2. Project 2.Cost Aggregetion 2.Project Funding
Documents 3. Data Analysis Requirements
3. Business 4.Historical 3.Project
Documents Information Document
4. Agreements Review Updates
5. Risk Register 5.Funding Limit
6. EEF Reconcilation
7. OPA 6.Financing
Cost Budget
Cost Aggregation
Project Management Cost baseline
Budget reserve

Contingency
Cost Control reserve
baseline accounts Activity
Work contingency
Package
Activity cost
cost estimate
estimate
 Funding Limit Reconciliation

• The act of comparing and adjusting the

funding limits and the estimated costs by
refining the scope, rescheduling the activities
and so on.
Cost aggregation example:
Control Costs

Monitoring the status

of the project to
update the project
costs and managing
changes to the cost
baseline
 Inputs Tools & Outputs
Techniques 1. Work Performance
1. Project Information
Management Plan 1. Expert Judgment
2. Project 2. Cost Forecast
2. Data Analysis 3. Change Requests
Documents
3. To-complete 4. Project
3. Project Funding Performance Index
Requirements Management Plan
4. Project Updates
4. Work Performance Management
Data 5. Project Document
Information System Updates
5. OPA
How to control cost?
• Follow the Cost
Management Plan
• Look at any OPA that are
available
• Manage change: record,
prevent, ensure, manage,
measure
 Earn Value Management
• Measure the health of a project
• to communicate the progress of
the works.
• Measure in monetary terms
 Earn Value Management

Plan cost (Plan Value) 100.000

Actual Cost 80.000

Cost efficiency???
 Earn Value Management

NOT ENOUGH
INFORMATION
 Earn Value Management
As of today
Original plan
BAC
Original PV
spending
actual AC
spending
ETC EAC
Forecast
Spending
plan
 Earn Value Management

Plan cost (Plan Value) = 100.000 (100%)

Actual Cost 80.000 (50%)

Cost efficiency???
The actual cost should be 50.000
 Earn Value Management
Plan cost (Plan Value/ PV) or BCWS
Budgeted Cost Work Scheduled

Actual Cost (AC) or ACWP

Actual Cost Work Performed

Earn Value (EV ) or BCWP PV x % work

Budgeted Cost Work Performed
Earn Value Management

SPI (Schedule Performance Index)

SPI= EV/PV

SPI < 1  Schedule overrun

SPI = 1  on time
SPI > 1  Schedule underrun
 Earn Value Management

CPI (cost Performance Index)

CPI= EV/AC

CPI < 1  OVER BUDGET

CPI = 1  on BUDGET

CPI > 1 UNDER BUDGET

 Earn Value Management

Variance
Analysis

Cost Variance (CV): EV-AC

Schedule Variance (SV): EV-PV
Exercise:

Ten houses will be built within 12 months.

The cost of each houses is Rp 100 milion. The
project condition after 5 months are :
– The cost already used Rp.310 milion whereas the
plan value until fifth month is estimated at Rp.
360 Milion.
– The overall performance of the project,
converted to money, equals to Rp. 250 Milion.
Answer:
• cost variance (CV)= EV-AC= Rp. 250 - Rp 310= -6,
overbudget 6 milion
• Schedule Variance (SV)= EV-PV = Rp250 - Rp360 =
-11, schedule overun equals to 11 Milion.
• Cost Performance Index (CPI)= EV/AC = Rp
250/Rp 310= 0,806 (overbudget, actual>planned)
• Schedule Performance Index (SPI)= EV/PV=RP
250/ Rp.360= 0,694 (schedule overrun, actual >
planned)
Ada 4 pendekatan
untuk menghitung
EAC lho!
 Simple calculation
Based on previous performance

No variances form the BAC

have occurred

EA Poor cost performance (CPI<1)

C Original estimation
fundamentally flawed
 Simple calculation
Based on previous performance

Varians
dianggap
sama sampai
EAC=AC+(BAC-EV)
akhir

Besarnya gap dengan baseline biaya

cenderung sama (stabil) sampai nanti proyek
selesai
No variances from EAC = BAC/CPI
BAC
Or EAC= AC + (BAC-EV)/CPI

Kumulatif CPI mencerminkan kinerja masa

lalu namun mempenaruhi keadaan proyek
pada akhirnya
 EAC= AC+
Poor cost performance
[(BAC-EV)/(Cumulative CPI
(CPI<1) + Cumulative SPI)]

Kinerja biaya proyek buruk dan

membutuhkan perhatian manajemen
 Original estimation EAC= AC+ Bottom Up ETC
fundamentally flawed

Mengalami perubahan baseline berkali2

identic dengan perubahan amandemen
proyek
Answer:

Estimate at completion
EAC*= AC + ETC (estimate to complete)
ETC= BAC-EV= 1000-250= 750
EAC*= 310+ 750=1060
EAC*= BAC/CPI = 1000/0.806=1.240,69

Estimate Complete Duration (ECD)

Initial schedule/SPI= 12/0.694 =17,29
To-Complete Performance
Index (TCPI)

Work Remaining (BAC – EV)

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

TCPI>1 Bad
TCPI<1Good
To-Complete Performance
Index (TCPI)

• TCPI = (1000-250)/ (1000-310) = 1,08 or

• TCPI * = ((1000-250)/ {(1000-250)/0,806}-310} = 1,2

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
EVM Interpretation

• SPI= 0,806 (we’re only progressing at about 83 percent

of the rate planned)
• CPI= 0,694 (we are only getting 89 cents out of every
dollar we put into project
EVM Interpretation

• ETC= 750 (we need so spend an additional 750 to finish

the project)
• EAC= 1060 (we currently estimate that the total project
will cost 1060 at the end)
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Image captured from Practice Standard for Earned Value Management, PMI © 2005 E
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Image captured from Practice Standard for Earned Value Management, PMI © 2005 E
 Earned Value: Graphical Representation

TODAY
(Reporting day)
Projection of
schedule delay
at completion
Estimate at
Completion
EAC (EAC)
Projection of
cost variance
at completion
BAC (VAC)

AC Budget at
Completion
(BAC)
COST

Cost
Variance
(CV)

PV

Schedule
Variance
(SV)
ACTUAL
EV
PLAN

EARN
VALUE

TIME
Project is over budget & behind schedule
example
activity predecessor resource duration
A - 6 4
B A 2 1
C A 2 3
D B 7 4
E D 3 2
F E,C 1 1

Resource limit is set at 8 man

Draw project network
5 1 5 6 4 9 10 2 11
B D E
12 1 12
5 0 5 6 0 9 10 0 11 FINISH
1 4 4 F
Start A 12 0 12
1 0 4
5 3 7
C
9 4 11
 Plot into Gantt chart
• Using dependency and interdependency
diagram
 Resource
imbalance
TF C= 4 DAYS
AKTIVITAS
A A,6
B B,2
C C,2
D D,7
E E,3
F F,1
0 1 2 3 4 5 6 7 8 9 10 11 12
DURASI
AKTIVITAS
A A,6
B B,2
C C,2
D D,7
E E,3
F F,1
0 1 2 3 4 5 6 7 8 9 10 11 12
DURASI
RESOURCES
10
9
8 c,2
7
6
5
4 D,7 D,7 c,2
A,6
3
2 E,3
B,2
1 F,1
0 1 2 3 4 5 6 7 8 9 10 11 12
DURASI
AKTIVITAS
A
Task splitted
A,6
B B,2
C C, C,2
D D,7
E E,3
F F,1
0 1 2 3 4 5 6 7 8 9 10 11 12
DURASI
AKTIVITAS
A A,6
B B,2
C C, C,2
D D,7
E E,3
F F,1
0 1 2 3 4 5 6 7 8 9 10 11 12
DURASI
RESOURCES
10
9
8
7
6
5
c,2
4 D,7 D,7
A,6
3 C,2
2 E,3
B,2
1 F,1
0 1 2 3 4 5 6 7 8 9 10 11 12
DURASI
 Summary
Period Resource levelling
requirement
0-4 6 6
4-5 4 4
5-9 9 7
7-9 7 7
9-11 3 5
11-12 1 1
 Resource Loading Chart
Delayed task
8
Resources

6
Resource
4 imbalance
A D F
B
2 E
C

2 4 6 8 10 12 14
Project Days
 Recruitment at the early period
Period levelling
0-4 6 Recruitment cost =
4-5 4
$10/man
5-9 7
7-9 7 Idle cost= $5/man
9-11 5
Wages= $15/man
11-12 1
 Recruitment at the early period
Period levelling Cost
0-4 6 1) 7 x $10= $70
2) 6 x $15= $90 Recruitment cost =
3) 1 x $5= 5 $10/man
total= $165
4-5 4 1) 4x $15= $60 Idle cost= $5/man
2) 3 x $5= $5
total= $ 65 Wages= $15/man
5-9 7 7x $15= $90
7-9 7 7x $15= $90
9-11 5 5x $15= $85 Total cost= 510
11-12 1 1x $15= $15
• the United Kingdom’s National Health
Service (NHS) IT modernization program

will eventually cost more $26

billion overrun
• incompatible systems, resistance from
physicians, arguments among
contractors about who’s responsible
• The Obama campaign used 16 different
online social platforms,

• 80 percent of all contributions originated from

social networks,
 Reference
• Rita Mulcahy’s, PMP Exam
Prep Ninth Edition. 2018

• PMBOK Guide Sixth Edition. 2018.